- TIA EXAM 5 - FRIEDLAND CH 12 - 13

• 1. Limited used: Claim activity related to IBNR is related consistently to claims already reported
• 2. Mtd appropriate when applied to lines for which most claims reported in first Acc Period
• * works well with CM coverage and RY analysis

• 1. Calculate ratios of inc. paid at x to case o/s at x-12
• 2. Calculate ratios of case o/s to previous case o/s
• 3. Project future case o/s
• 4. Project future incr. paid
• 5. Ultimate claims equal sum of incrementals

• 1. Mtd assumes that future IBNR is related to clms already reported but this doesn't hold true for many lines
• 2. Infrequently used, lack of benchmarks

• Self-insurer
• times of transition, mergers & acquisition where there is a change and we just don't have enough historical data

• Past is indicative of the future
• Claims recorded will develop in a similar manner in the future as the industry benchmark used to select reporting and payment patterns

Projects unpaid claims, not ultimate claims

• (RPT CDF-Ult - 1) * (Paid CDF-ULT) - 1
• (Paid CDF-Ult - RPT CDF-ULT)

estimation of underlying trend in severity

• Medical Malpractice
• -slow pmt of claims reduces data
• -severity trends can be distorted by irregular settlements and variations in CNP

Without trending back Rpt Claims, IBNR will be overstated b/c change in operations would have caused reported to be too big, thus LDFs would be too big

• 1. Exponential curve Y = a*exp(bX)
• 2. Linear relationship:

• Linear regression of CDFs at each age
• Exponential regression of CDF at each age to select CDF

Higher % of closed claim counts relative to ultimate claim count is associated with higher % of ult claims paid

• 1. Lack recognition of settlement patterns by size of loss may incr error
• 2. If # small clms closed Decr and large claims closed are incr, then may see overall decrease in closure rate but increase in claims paid