LTD Credibility

Question 1

LTD Credibility

2012 GLTD Valuation Standard

Answer 1

• Carriers with fully credible experience = 100% company experience
• Mid-sized carriers = Mix
• Carriers w/o credible experience = 100% GLTD table

Question 2

LTD Credibility

Limited Fluctuation Credibility Model (Flaw and Correction)

Answer 2

• Flaw = assumes claim terminations are independent (they aren’t)
  
  • Increase volatility and reduce credibility
• Correction = Selected Variance Factors

Question 3

LTD Credibility

Claim Termination Experience: Full Credibility

Answer 3

Number of terminations that yields an 85% probability that observed terminations are within 5% of expected terminations

Question 4

LTD Credibility

Claim Termination Experience: Partial Credibility

Answer 4

Number of terminations that yields an 85% probability that observed terminations are within 5% of expected terminations

Question 5

LTD Credibility

Adv/Disadv of Subjective Credibility Process

Answer 5

• Adv = simple and flexible
• Disadv = Hard to justify

Question 6

LTD Credibility

Adv/Disadv of Formal Credibility Process

Answer 6

• Adv = objective and theoretically justifiable
• Disadv = hard to implement

Question 7

LTD Credibility

Challenges in Applying Credibility in LTD

Answer 7

• Non-independence of claims
• Heterogenous claims = assumption that past experience is indicative of future experience
• Competitive Pricing Pressures
• Claim Duration (Short = Volatile, Long = Stabler)
• Benefits from Other Sources
• Outlier Claims
• Regulatory Requirements
• Estimating Paramters

Question 8

LTD Credibility

Number of Claims Required to be Fully Credible Formula

Answer 8

• Adv = objective and theoretically justifiable
• Disadv = hard to implement