Actuarial Outpost
 
Go Back   Actuarial Outpost > Actuarial Discussion Forum > Property - Casualty / General Insurance
FlashChat Actuarial Discussion Preliminary Exams CAS/SOA Exams Cyberchat Around the World Suggestions

Browse Open Actuarial Jobs

Life  Health  Casualty  Pension  Entry Level  All Jobs  Salaries


Reply
 
Thread Tools Search this Thread Display Modes
  #1  
Old 01-03-2018, 05:20 PM
TDH TDH is offline
Member
CAS Non-Actuary
 
Join Date: Dec 2016
Posts: 47
Default Developing layered losses - which order?

If you had individual claims with AOC limits and excess, and aggregate limits and excess, at what point do you develop?

I thought it would be first:

1) Trend individual losses
2) Layer individual losses
3) aggregate by year
4) apply aggregate loss modifies
5) develop the losses in the layer

However, http://www.cii.co.uk/knowledge/resou...-process/43681

states at step 10, we apply aggregate modifiers after developing - I don't see the logic here. It seems as though the author is stating to only apply the individual modifiers then develop, then apply the aggregate. What's the reasoning?

Any help please

Last edited by TDH; 01-03-2018 at 05:43 PM..
Reply With Quote
  #2  
Old 01-04-2018, 12:11 AM
Harbinger Harbinger is offline
Notes Contributor
CAS
 
Join Date: Feb 2005
Posts: 2,377
Default

Can you provide some background on what you’re pricing/analyzing?
__________________
har·bin·ger (här'bin-jer): One that indicates or foreshadows what is to come; a forerunner.
Reply With Quote
  #3  
Old 01-04-2018, 06:11 AM
TDH TDH is offline
Member
CAS Non-Actuary
 
Join Date: Dec 2016
Posts: 47
Default

a large account
Reply With Quote
  #4  
Old 01-04-2018, 09:19 AM
Maphisto's Sidekick's Avatar
Maphisto's Sidekick Maphisto's Sidekick is offline
Member
CAS
 
Join Date: Nov 2001
Location: South Park Genetics Lab
College: Ardnox
Favorite beer: The kind with alcohol
Posts: 2,723
Default

The nice thing about mathematics is that you can do things in a different order, and arrive at the correct answer (or an approximately equally correct answer) provided the intermediate steps use information that is crafted with assumptions that are compatible with where you are in your overall process.

I've done quite a bit with large account pricing in property-casualty. I think I minimize my headaches by trending individual claims, dividing the individual claims into layers, aggregating the losses in the layers, and then developing the aggregations of the layers.

However, the development factors I apply have to themselves be created using trended, layered losses.

I prefer to do this because it neatly handles the questions of what to do about claims not yet reported, what to do about claims that develop into a higher layer, or claims that fall out of a layer when closing. The downside, however, is that if you are developing excess layer(s), the data can become so sparse as to requiring judgment in coming up with suitable development factors.

Oh, and when coming up with trend to apply to individual uncapped claims, keep in mind that some of the more popular industry trend metrics (at least in the US) are based on capped losses, and therefore some modification may be required before you use them.
Reply With Quote
  #5  
Old 01-04-2018, 01:39 PM
TDH TDH is offline
Member
CAS Non-Actuary
 
Join Date: Dec 2016
Posts: 47
Default

Quote:
Originally Posted by Maphisto's Sidekick View Post
The nice thing about mathematics is that you can do things in a different order, and arrive at the correct answer (or an approximately equally correct answer) provided the intermediate steps use information that is crafted with assumptions that are compatible with where you are in your overall process.

I've done quite a bit with large account pricing in property-casualty. I think I minimize my headaches by trending individual claims, dividing the individual claims into layers, aggregating the losses in the layers, and then developing the aggregations of the layers.

However, the development factors I apply have to themselves be created using trended, layered losses.

I prefer to do this because it neatly handles the questions of what to do about claims not yet reported, what to do about claims that develop into a higher layer, or claims that fall out of a layer when closing. The downside, however, is that if you are developing excess layer(s), the data can become so sparse as to requiring judgment in coming up with suitable development factors.

Oh, and when coming up with trend to apply to individual uncapped claims, keep in mind that some of the more popular industry trend metrics (at least in the US) are based on capped losses, and therefore some modification may be required before you use them.
Thanks for this.

The data I have right now is fairly sparse. The only triangle I have is for the line of business, rather than the specific risk. I'll see if I can more data, else I'll go with what I have for now.

Thanks again.
Reply With Quote
  #6  
Old 01-05-2018, 01:11 PM
Maphisto's Sidekick's Avatar
Maphisto's Sidekick Maphisto's Sidekick is offline
Member
CAS
 
Join Date: Nov 2001
Location: South Park Genetics Lab
College: Ardnox
Favorite beer: The kind with alcohol
Posts: 2,723
Default

Quote:
Originally Posted by TDH View Post
Thanks for this.

The data I have right now is fairly sparse. The only triangle I have is for the line of business, rather than the specific risk.
That's not uncommon.

If you have the time and data, and depending on what it is that you're looking at, a few more points to consider:
  • For accounts with large retentions, the delay in getting the notice of loss to the carrier is probably more dependent on the account (and/or its TPA), but once on the books, the carrier's reserving practices may not be that different from other similarly mature claims.
  • There was a paper recently that discussed techniques of credibility-weighting thin loss development data. (Don't have the details off the top of my head, unfortunately.) It's not something that's proven worth the effort with the kinds of accounts I typically look at, but for something huge....
  • Try to sensitivity-test assumptions or judgment calls you make. That will give you a taste for how material your choice of selection might be, as well as providing some insight as to how much you want to load your indication for parameter risk.
Reply With Quote
  #7  
Old 02-12-2018, 03:35 PM
DeepPurple's Avatar
DeepPurple DeepPurple is offline
Member
 
Join Date: Jun 2004
Posts: 4,203
Default

Without going into specifics techniques that are likely to be proprietary, I'd like the OP to consider the similarities/differences among these 4 trend assumptions of 10% combined trend.

1) Severity is trending at 10% and the frequency is trending at 0%
2) Sev = 0% Freq = 10%
3) Sev = 5% Freq = 5%
4) Sev = 20% Freq = -10%
__________________
Come on. Let's go space truckin'. Come on!
Reply With Quote
  #8  
Old 02-12-2018, 03:48 PM
DeepPurple's Avatar
DeepPurple DeepPurple is offline
Member
 
Join Date: Jun 2004
Posts: 4,203
Default

Quote:
Originally Posted by Maphisto's Sidekick View Post
The nice thing about mathematics is that you can do things in a different order, and arrive at the correct answer (or an approximately equally correct answer) provided the intermediate steps use information that is crafted with assumptions that are compatible with where you are in your overall process.

I think this might be rule-of-thumb worthy AT BEST. I do not believe it to be true in all cases.

Consider a situation where the layer attaches above the largest untrended loss but NOT above the largest trended loss.

If you do not apply trend, there is NO FACTOR large enough to multiply against $0 in the layer to get you an answer that is commensurate with the loss dollars that emerge when the layer is applied to losses trended for severity.
__________________
Come on. Let's go space truckin'. Come on!

Last edited by DeepPurple; 02-12-2018 at 04:11 PM..
Reply With Quote
  #9  
Old 02-12-2018, 05:03 PM
r8ingStuff r8ingStuff is offline
CAS AAA
 
Join Date: Apr 2016
Location: Philadelphia
Studying for Nothin'
Favorite beer: Urban Village Brewery
Posts: 14
Default

Has anyone used the difference of two limited layers' ultimate trended loss - say, losses limited at $500k and losses limited at $250k - to evaluate a 250k x 250k layer? What would be the difference in assumptions here? I'm thinking along the lines of if xs ldfs aren't available.
Reply With Quote
  #10  
Old 02-13-2018, 11:37 AM
DeepPurple's Avatar
DeepPurple DeepPurple is offline
Member
 
Join Date: Jun 2004
Posts: 4,203
Default

Quote:
Originally Posted by r8ingStuff View Post
Has anyone used the difference of two limited layers' ultimate trended loss - say, losses limited at $500k and losses limited at $250k - to evaluate a 250k x 250k layer? What would be the difference in assumptions here? I'm thinking along the lines of if xs ldfs aren't available.
Would you use the same ldf's on the two sets?
__________________
Come on. Let's go space truckin'. Come on!
Reply With Quote
Reply

Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off


All times are GMT -4. The time now is 06:48 PM.


Powered by vBulletin®
Copyright ©2000 - 2018, Jelsoft Enterprises Ltd.
*PLEASE NOTE: Posts are not checked for accuracy, and do not
represent the views of the Actuarial Outpost or its sponsors.
Page generated in 0.46543 seconds with 9 queries