Hi, For part c) why does poor claims experience throughout 2009 not distort the chain ladder estimates? I thought that poor claims experience in a particular year would distort the development factors and therefore overestimate future claims? Thanks
Hi B I don't have the question with me now, but is it because the triangulation is based on underwriting year of origin? If so, a bad year of experience can affect policies underwritten from different years, therefore all development factors will be affected consistently.
No, the triangle is based on an accident year cohort. The solution says that poor claims experience throughout 2009 will not distort the effectiveness of the ICL estimates provided there is no change in the balance between long and short tailed claims (private motor business). I think i've figured it out now- is it because the whole row for 2009 would increase by a similar factor (short tailed claims would affect earlier development periods and long tailed claims would affect later development periods) and so development factors would not be affected overall as long as claims development is unchanged in that AY?
Hi, I think you're nearly there but just to clarify: As long as the development patterns aren't distorted then there is no problem. This is Motor, where bodily injury and damage claims will have different development patterns - but we're told here that the claims experience is poor across all claim types, so we can assume that this affects all types of claim equally and therefore the development patterns will be constant. The poor claims experience for 2009 will lead to higher numbers in the triangle for that year, but that's OK. If we apply our development factors to these higher numbers then we will get higher outstandings (reserves) for 2009, which is what we would want/expect. As the solutions state though, in practice there are likely to be knock-on effects... Coralie
