2011 #22 - IRIS 13 (F 2016 #15, S 2015 #16)

Victor_WVictor_W
in NAIC.IRIS

Hello, BattleActs TA
In 2011 Q22, I don't understand its approach for "1-yr reserve development" and "prior 1-yr reserve" (same for its 2-yr's calculation).

(1) why is the reserve development calculated by Incurred triangle's "CY" - "CY-1" columns? I think that generates the "Incurred loss development", not the "reserve development".
This is my main confusion; it also applies for F2016-Q15, S2015-Q16, etc. I also read the thread
https://www.battleacts6us.ca/vanillaforum6us/discussion/635/spring-2015-16?

Suppose I ask: (a) What is the 1-yr Incurred Loss $ development? (b) what is the 1-yr Reserve $ development? (c) what is the 1-yr Paid Loss $ development?
according to the exam, the answer to (a) and (b) are the same (which is the sum of the differences between Incurred loss triangle's CY column and CY-1 column (removing last row)). Isn't this weird?

(2) why is the prior year Loss and LAE (from balance sheet lines) used as prior year reserve? I think "L&LAE" and "L&LAE reserve" are different things

(3) in my answer, it holds that "CY-1 reserve" + "1yr reserve development" = "CY reserve", which is how I think the (additive) development logic works for all the $Paid loss triangle, $Incurred loss triangle, $Reserve triangle, etc
I'm not sure what does the exam answer's "CY-1 reserve" + "1yr reserve development" result number represent?

in attachment I provided exam answer (column O) my answer (Column Q). I am not sure if I miss important knowledge from other textbook/chapter that I havn't read, so also please advice. Thank you very much!

Comments

  • Victor_WVictor_W

  • Victor_WVictor_W

    I put more thoughts into it. Maybe "reserve increase/decrease" and "reserve development" are two different things?
    Here is an example : for all accidents prior to the end of CY-1, Let reserve0 represent the estimate reserve at end of CY-1 (using the notation from the Spring 2015 #16 thread).

    • In scenario #1, (CY incremental paid loss is $30), cumulative paid increase by $30 and reserve decrease by $30. meaning that Actuary at end of CY believe that the estimated reserve from 1 year ago is still correct. So the reserve development is $0
    • In scenario #2, (CY incremental paid loss is $30), cumulative paid increase by $30 but reserve decreases only by $4. meaning that Actuary at end of CY believe that the estimated reserve from 1 year ago is insufficient, the reserve development is +$26
    • in the entire process, we're not considering accidents incurred in CY
    • the bold words demonstrates how "reserve increase/decrease" is different from "reserve development"

    does this make more sense? thank you!

  • Staff - ACStaff - AC

    Yes, you've got it now.

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