October 2015 UK paper

We need to adjust the incurred claims information given so that they are all on a "level playing field"in terms of exposure, so that we can calculate a reporting pattern for the incurred claims.

At the moment, the amount of exposure at each month of delay is different, so we need to "gross" up the incurred claims at delays greater than one so that they are all based on the same amount of exposure. We do this by ratioing up the incurred claims in proportion to the amount of earned premium at each delay month relative to the earned premium at one month of delay.

 

Hi there

The problem is that the exposure which has generated the 16.25m of earned premium is not all at the same stage of development and some will be more developed than others, which means that it will be at a different percentage reported.

For example, 2.5m of the earned premium is from exposure that is only 1 month developed at the end of the year, 2.29m is from exposure that is 2 months developed, 2.08m from exposure that is three months developed and so on.

You need to use the adjusted incurred claims data (as mentioned above) to work out what stage of development, in terms of percentage reported, each month is at the year end.

You can then apply one minus this percentage to the estimated ultimate claims from earned exposures to estimate the ultimate
earned but unreported claims.

The calculation is set out in detail in the ASET.