- TIA EXAM 5 - FRIEDLAND CH 07
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When calculating the averages of age-to-age factors, what is the stability vs. responsibility trade-off?
Most recent experience is most likely to reflect effect of latest changes in environment
Greater number of experience periods will increase stability
What should be reviewed when selecting development factors?
- Smooth progression of age-to-age factors across dvt periods
- Stability of age-to-age factors for same dvt period
- Credibility of experience
- Changes in patterns
- Applicability of historical experience
Describe the process of selecting the tail factor in the reported development technique?
- When data is available, analyze dvt out to where data ceases
- When most mature dvt period in data has factors greater than 1.0, actuary has to determine tail
- Limited availability of data makes selection difficult
- May increase/decrease due to trends in cum injury or settlement practices
- Tail affects unpaid estimate for all AYs so crucial to be right
- Can use: Benchmarks, Fit exponential decay curve, and
- For Pd dvt, when Rpt dvt is ultimate, use rpt-to-paid ratio at latest observed Pd period
Common that dvt increases as Retention increases.What does RAA suggest that increase due to?
- Late reported clms
- Increases in avg reported loss per claim
- Changes at successive maturities in the proportion of claims with losses which are large multiples of ave (Shape of size of loss distn changes at successive valuations)
P&G model that illustrates increase LDFs as retention increases shows what 2 influences underlying clm dvt?
- 1 - Rpt pattern of claims over time
- 2 - Changing characteristics of size of claims distn at successive maturities
without influence, dvt factors for clms excess in excess retentions would be same
=> Retention is a major factor inestimating discounted losses using paid dvt factors
Changing product mix: Personal auto 5% increase, Comm 30% rate increase
- Comm auto has longer rpt pattern so higher age-to-age
- Increased Comm volume increase Age-to-age
- IBNR is understatedTake 3-yr ave instead of 5-yr is better but not best
- Rpt dvt more responsive than Pd dvt due to shorter time frame for rpt than paid
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