Exam 5 Development Technique

Question 1

7 steps to develop triangle

Answer 1

1. Compile claims data in a development triangle
2. Calculate age-to-age factors
3. Calculate averages of the age-to-age factors
4. Select claim development factors
5. Select tail factor
6. Calculate cumulative claim development factors
7. Project ultimate claims

Question 2

Techniques for average of age-to-age factors

Answer 2

1. Simple (or arithmetic) average
2. Medial average (average excluding high and low values)
3. Volume-weighted average
4. Geometric average

Question 3

What characteristics does actuaries review in claim development factors

Answer 3

1. Smooth progression of individual age-to-age factors and average factors across development periods
2. Stability of age-to-age for the same development period
3. Credibility of the experience
4. Changes in patterns
5. Applicability of the historical experience

Question 4

Approaches to evaluate the tail factor

Answer 4

1. Industry benchmark development factors
2. Fit a curve to the selected or observed development factors to extrapolate the tail factors
3. Used for paid development where the comparable reported development is already considered to be at ultimate, is to utilize reported-to-paid ratios at the latest observed paid development period

Question 5

CDF

Answer 5

Cumulative Development Factors, project the total growth over the remaining valuation. aka age-to-ultimate factors and claim development factors to ultimate

Question 6

2 Ways to calculate IBNR

Answer 6

projected ultimate claims - reported claims, or , total unpaid claims - case outstanding

Question 7

reporting pattern of claims

Answer 7

percentage of ultimate claims that are reported in each year

Question 8

immature vs. mature

Answer 8

Actuaries refer to the most recent, less-developed accident year as immature;
Oldest, most-developed accident year as mature