Influences of changing environment - Change in case o/s scenario
Hi,
Following is an for the original reported triangle as well as the above mentioned scenario (which represents a 20% increase in case reserves in CY 4,5 and 6). Specifically let's consider the calculation behind CY 3, development period 2 and 3, both of which are eligible for case increase here.
I do not understand the underlying calculation (may be because I am revising the basics after a long time!). Kindly help.
Original reported triangle for reference ==>
Triangle after case increase ==>
Now to derive 3024 (in green) from the original 2880, I just did the following: 2160+1.2*(2880-2160) = 3024
But, I am slightly confused with how you came up with 3744 (in purple). What I would have done is the following: 3024+1.2*(3600-2880) = 3888 so as to add the new case o/s at age 3 to the new reported position at age 2.
I guess what you did is the following: 2880+1.2*(3600-2880) = 3744 wherein you might have incorporated new case o/s level incrementally b/w ages 2 and 3, but added it to the old reported position from age 2 to make it cumulative.
Is that an error? If not, then kindly explain the rationale behind your approach.
Thanks!
Comments
You can't calculate it like that. You don't have enough information. (You need the paid counts.)
When a claim is paid, it is settled for the correct amount and the over-reserving is reversed in the next row entry in the reported triangle. So you also need to know how many over-reserved claims are paid at each age and then subtract 20% of the correct settlement amount of each over-reserved claim from the next reported loss value. (But you are not told how many over-reserved claims are paid at each age.)
In any case, an exam question would not ask you to create such a triangle. They would give you a triangle and ask you to determine whether there has been a change in case reserve strength using diagnostics.