- TIA EXAM 5 - FRIEDLAND CH 10 - 11

Method understates IBNR

• 30% rate inc for CL, 5% for PL
• Increasing CL in BOB

• 1. Used with AY, PY, RY & CY data
• 2. Appropriate for all lines of insurance (most often used with long-lines)
• 3. Freq-Sev methods often refer to ult clm x ult sev without direct use of exposure (even if there is one in def)

• Higher # clms rpted at begining of winter season
• Less time to process Nov & Dec winter claims by year end
• **Must consider this since causes differences in age-to-age factor selection

• salvage and subrogation recoveries
• conservative case reserves

• 1. Project and Select ult Claim Counts
• 2. Project Ult Severity
• 3. Project Ult Claims
• 4. Develop unpaid claim estimate

• 1. Project and Select ult Claim Counts
• 2. Compare ult claimcounts to exposures and select freq
• 3. Project Ult Severity
• 4. Project Ult Claims
• 5. Develop unpaid claim estimate

• 1. Project ult claim counts & select ult claim counts by AY
• 2. Develop disposal rate triangle and select disposal rate by maturity age
• 3. Project claim counts by AY and maturity (complete the square)
• 4. Analyze severities and select severity by maturity
• 5. Calculate severity by maturity age and AY (complete square)
• 6. Multiply CC by severity to determine projected claims
• 7. Determine unpaid claim estimate

• Common to use exponential regression analysis: implies constant % increase in inflation
• May also use wtded exponential least squares to give more weight to recent years
• Linear proj used rarely: implies decreasing % trend
• Run many GOF on regression
• Only a few data points not meaningful

Combine experience of several maturity ages

• Results from:
• 1. 1 or more large claims closed at older age
• 2. Often related to smaller # of claims in data set at older maturities
• 3. Combining data may limit influence of these factors

• Age at which results become eratic
• Influence on total projections of selecting a particular age
• % of claims expected to be closed beyond selected age

Projected Ult Clms from Freq-Sev technique is often valuable as an alternative expected claims estimate for BF

Actuary may feel more comfortable with this than expected claims ratio

• Seasonality on freq & sev
• inflation