#15 c)
I don't quite understand the concept of calculating AY 2015 1-year loss reserve development. My initial calculation is (Total unpaid loss as of Dec 31, 2016 excluding AY 2016 loss) - (Total losses unpaid as of December 31, 2015). But the solution also added the AY 2015 paid loss during 2016 into the calculation. Any advice? Thanks in advance!
Comments
If the AY 2015 1-year loss reserve development are losses incurred during 2016 for AY2015, this would now make sense.
Yes, except it is not exactly "AY 2015 1-year loss reserve development." 1-year loss reserve development is for the prior years, and here, prior years is only AY2015. Just semantics.
They do it in this roundabout way because of this:
"reserve development" = reserve1 - ( reserve0 - paid from 0 to 1)
If reserve0 was set correctly, reserve1 ought to be reserve0 less the paid in the following calendar year. If reserve1 is different from this, then the difference is called "reserve development."
This, as you note, is the calendar year incurred of the prior accident years.