Fisher and Lester

[Sox34]

On page 157, it says that the actual IBNR need, as determined in Exhibit I, is $1,302,000 ... but in looking at exhibit I, I dont' see how that is calculated. Can someone tell me how to calc this from what is given?

Thanks!

[Examinator]

Sum of earned premium = $13,600,000.
Expected ultimate losses = 60% of this, or $8,160,00
Losses incurred to date = $6,857,849.
IBNR need is the difference between ultimate and to date, or = $1,302,151.

[Sox34]

Thanks, Examinator. Do you also know why they use the same development factors (as calc in exhibit V) for the different situations? We are given different triangles in exhibits I-IV, so I don't see why we use the same LDFs as found using exhibit I data.

[Examinator]

I think it's pretty standard to use a three-year mean (where available) of the link ratios, or a three-year weighted ratio. I'm not sure, otherwise. I think the main idea in this article is claim cost and reserve management trends within the three methods discussed.

[Sox34]

I think it's pretty standard to use a three-year mean (where available) of the link ratios, or a three-year weighted ratio. I'm not sure, otherwise. I think the main idea in this article is claim cost and reserve management trends within the three methods discussed.


Thanks. I was just concerned with why they used the same LDFs in the Deteriorating Loss Ratio situation as the Static Situation when we are given a triangle in Exhibit II that corresponds to the former. The authors even say that a weakness is that the expected loss ratio approach here yields the same results as the static case because the exp loss ratio and the LDFs haven't changed... which doesn't have to be the case. Anyway, it's probably not a big deal. I'll just move on :) thanks again for the help.

[Examinator]

I think that's the point they're trying to make: strengths and weaknesses of each method in each situation. I don't think there's anything really deep going on here in this article.

[The Sad Man]

Thanks. I was just concerned with why they used the same LDFs in the Deteriorating Loss Ratio situation as the Static Situation when we are given a triangle in Exhibit II that corresponds to the former. The authors even say that a weakness is that the expected loss ratio approach here yields the same results as the static case because the exp loss ratio and the LDFs haven't changed... which doesn't have to be the case. Anyway, it's probably not a big deal. I'll just move on :) thanks again for the help.

If you evaluate the actual ratios at the various development points, you'll see they're the same as the static situation. The loss ratio deteriorates because the 12 month reported loss increases as the accident years increase, not as the development increases. One thing that's slightly confusing about this approach is they reverse the x and y axis. Normally, I want to assume development occurs horizontally and not vertically.