Part 6: Johnson/Kittel

[Avi]

Is it my imagination, or do Johnson and Kittel have a different understanding of how to apply the classic "Paid-to-Paid" ratio to calculate a ULAE reserve?

If I undertsand this correctly, Kittel states that the ULAE ratio is applied to 50% of the Loss reserve and 100% of the IBNR reserve.

Johnson seems to say that it is applied 50% to the Loss reserve and 50% to the IBNR reserve?

:wall:

[ramanujan]

Is it my imagination, or do Johnson and Kittel have a different understanding of how to apply the classic "Paid-to-Paid" ratio to calculate a ULAE reserve?

If I undertsand this correctly, Kittel states that the ULAE ratio is applied to 50% of the Loss reserve and 100% of the IBNR reserve.

Johnson seems to say that it is applied 50% to the Loss reserve and 50% to the IBNR reserve?

:wall:

My understanding is that Johnson does not care about the case and IBNR reserves. Rather, ULAE reserve = projected weighted open claim for each future CY multiplied by the projected average ULAE per claim in CY.

Weighted open claim for each future CY is the sum of open claims at the end of CY+ claims opened during the CY. Weighted open claims for future Calender Years are projected based on the claim reporting and closure pattern.

Average ULAE is calculated by fitting a line thru historical Average ULAE ( = total ULAE in CY/weighted open claims in CY). This is then adjusted for inflation. The inflation can be baed on historical data or selected independently.

The underlying assumption here is that ULAE costs are incurred in maintaining open claims and while opening a claim.

[Avi]

Is it my imagination, or do Johnson and Kittel have a different understanding of how to apply the classic "Paid-to-Paid" ratio to calculate a ULAE reserve?

If I undertsand this correctly, Kittel states that the ULAE ratio is applied to 50% of the Loss reserve and 100% of the IBNR reserve.

Johnson seems to say that it is applied 50% to the Loss reserve and 50% to the IBNR reserve?

:wall:

My understanding is that Johnson does not care about the case and IBNR reserves. Rather, ULAE reserve = projected weighted open claim for each future CY multiplied by the projected average ULAE per claim in CY.

Weighted open claim for each future CY is the sum of open claims at the end of CY+ claims opened during the CY. Weighted open claims for future Calender Years are projected based on the claim reporting and closure pattern.

Average ULAE is calculated by fitting a line thru historical Average ULAE ( = total ULAE in CY/weighted open claims in CY). This is then adjusted for inflation. The inflation can be baed on historical data or selected independently.

The underlying assumption here is that ULAE costs are incurred in maintaining open claims and while opening a claim.
I understand that Johnson herself has a structural method for evaluating ULAE case reserves based on a trended average cost per weighted claim and the total number of open weighted claims in a given CY coresponding to the AY/PY in question.

My question was as to their respective understandings of the classic 50/50 based paid-to-paid ratios.

[ramanujan]

Is it my imagination, or do Johnson and Kittel have a different understanding of how to apply the classic "Paid-to-Paid" ratio to calculate a ULAE reserve?

If I undertsand this correctly, Kittel states that the ULAE ratio is applied to 50% of the Loss reserve and 100% of the IBNR reserve.

Johnson seems to say that it is applied 50% to the Loss reserve and 50% to the IBNR reserve?

:wall:

My understanding is that Johnson does not care about the case and IBNR reserves. Rather, ULAE reserve = projected weighted open claim for each future CY multiplied by the projected average ULAE per claim in CY.

Weighted open claim for each future CY is the sum of open claims at the end of CY+ claims opened during the CY. Weighted open claims for future Calender Years are projected based on the claim reporting and closure pattern.

Average ULAE is calculated by fitting a line thru historical Average ULAE ( = total ULAE in CY/weighted open claims in CY). This is then adjusted for inflation. The inflation can be baed on historical data or selected independently.

The underlying assumption here is that ULAE costs are incurred in maintaining open claims and while opening a claim.
I understand that Johnson herself has a structural method for evaluating ULAE case reserves based on a trended average cost per weighted claim and the total number of open weighted claims in a given CY coresponding to the AY/PY in question.

My question was as to their respective understandings of the classic 50/50 based paid-to-paid ratios.

I guess by loss reserves Johnson means case reserves + IBNR reserves.

[Avi]

Which leads me to believe that she is not applying the ratios to the same base. Kittel makes a point of applying the entire ratio to the IBNR reserve sinc neither opening nor closing was performed on those cases.

Johnson, when ostensibly speaking of the same procedure, applies 50% of the ratio to both the Loss reserves and IBNR reserves.

Unless I am misreading either or both papers.

[ramanujan]

Both Johnson and Kittel are saying the same thing.

Kittel: 50%*Ratio*Case Reserve + Ratio*IBNR

Johnson: 50%*Ratio*Total Reserves + 50%*Ratio*IBNR
= 50%*Ratio*(Case Reserve + IBNR) + 50%*Ratio*IBNR
= 50%*Ratio*Case Reserve + Ratio*IBNR

[Avi]

Thank you. Now I get it.