2018 Fall #13
From the examiner's report, one of the solutions for part a uses the claims closure rate. Can you explain why a decrease of the claims closure rate at the 12 and 24 month evaluations leads us to conclude that reserves are inadequate?
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From the examiner's report, one of the solutions for part a uses the claims closure rate. Can you explain why a decrease of the claims closure rate at the 12 and 24 month evaluations leads us to conclude that reserves are inadequate?
Comments
That's not what it said. It said, using unadjusted ldfs will understate reserves.
You have to think in generalities, rather than what the effect of these particular years/figures are.
In the upper triangle, closure rates are higher. This means there will be less dollar development of paid.
If you apply these low paid ldfs to the years of the lower triangle, the resulting reserve will be lower than needed for these years. It's because these years have a relatively lower closure rate, meaning their paids are to develop more than what the upper triangle showed.