Kittel - ULAE calculation on page 319

[Peter Lemonjello]

On page 319 at the bottom, Kittel calculates ULAE using the "classical" method, and using his new method.

Why does he multiply by the 1980 incurred loss ($9000) instead of the Reserve for AY 1980?

[Kyndig]

I believe 1/2 the ratio is applied to payments on prior outstanding claims. The payments on prior outstanding claims can be obtained by removing the IBNR reserve from the total loss reserve (10,000 - 1,000). I think it may be a coincidence that they are both 9000.

[Examinator]

I believe 1/2 the ratio is applied to payments on prior outstanding claims. The payments on prior outstanding claims can be obtained by removing the IBNR reserve from the total loss reserve (10,000 - 1,000). I think it may be a coincidence that they are both 9000.I think you're right.

[Peter Lemonjello]

I still don't get it.

the forumula under the Paid to Paid Reserve says 1/2 x v x d + v x i

"d" is 1980 Incurred Loss. Page 317 seems to indicate it should be applied to the reserve.

Help!

[Kyndig]

I see what you mean. I didn't see that their formula referenced (d) directly. I agree with you that the explanation (and intuition) implies that 1/2 the factor should be applied to the reserve for development on known losses (total reserve - IBNR reserve).

I don't see why these two values should always agree. :swear:

Basically, the paper tells us to apply the factor to (b) - (i). The example applies it to (d) = (a) + (b) - (c). So the example implies that (b) - (i) must equal (a) + (b) - (c) => (c) = (i) + (a); or in words that the 1979 total loss reserve must equal the 1980 IBNR reserve + 1980 paid loss. I just am not seeing it! I am going to stick with applying the factor to (b) - (i).