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Old 03-29-2010, 10:04 PM
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NicoleLoyola NicoleLoyola is offline
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Default Loss Development Triangles including IBNR

What if an accounting department submits data for a reserve study that is loss paid + case reserves + IBNR. The data is then used to derive loss development factors which are then applied to rate filing losses. I have a problem seeing how this is consistent and appropriate since losses used in rate filings do not include IBNR. They are just loss paid + case reserves. I don't know anything about reserving, but could someone who does please explain why this is or is not correct?
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Old 03-29-2010, 10:32 PM
tommie frazier tommie frazier is offline
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you can develop paid losses to ultimate using loss development factors.

you can develop reported losses (paid + case reserve) to ultimate using loss development factors.

you can develop incurred (paid + case + IBNR) to ultimate using loss development factors.

if you develop the reported losses to ultimate for rate filings, you are estimating the IBNR.

If you develop paid to ultimate, you are estimating the unpaid (case reserve + IBNR).

Starting with IBNR already loaded, my guess is the development is slight. so it goes. Do you know how they estimate the IBNR amount? if it is an actuarially sound method?

**
if you are being told to use factors from one method ,say paid + case + IBNR, to develop reported, then your factors will be lacking.

just as you wouldn't use reported factors (pd + case) to dedvelop paid alone.
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Old 03-29-2010, 11:37 PM
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Any development present in an Incurred (incl IBNR) triangle would indicate a tendency for consistent under (or over) reserving in earlier periods with losses trending up or down to their actual ultimates over time. I mainly handle reserving in my role but have never come across a need to take a triangle of Ultimate Losses and produce development.

Seems very unusual. But then if consistent patterns are evident you can make an argument that selecting LDFs is worthwhile. I just don't understand the idea of developing current "Ultimate" losses to "Ultimate" ??
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Old 03-29-2010, 11:45 PM
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My thoughts exactly. Thank you very much for your opinions.
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Old 03-29-2010, 11:47 PM
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not sure how to develop IBNR.
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Old 03-30-2010, 12:01 AM
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The triangles that your CFO gave you most likely are the Schedule-P triangles (with IBNR). These are supposedly ultimates -- sometimes due to under-reserving there are upward developments.

The biggest problem with this data for rate filing (pricing) is they are on statutory line basis. These are sometimes of rolled up from many lines -- line 19.2, for example, has both BI and PD in it. Your rate filing needs separate data. That's the problem, IBNR are bulk reserves, they are not on pricing line basis.
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Old 04-01-2010, 09:22 AM
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>> Our accounting department submits the data for our reserve study that is loss paid + case reserves + IBNR. This data is then used to derive loss development factors which are then applied to our rate filing losses.

1. NCCI did this for years.
2. Can you remove the IBNR for the rate filing?
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Old 04-01-2010, 11:20 AM
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How does the accounting department determine the IBNR for a given accident year at a given development age and valuation date? Is that based on the actuary's selection at that point?

It seems like the only purpose of observing "Ultimate" losses at succesive valuations is to see how close the actuaries were to being right at the earlier periods. Otherwise the process that Jerry, Buck and the OP are describing does not make a whole lot of sense to me.
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Old 04-01-2010, 01:13 PM
Cloister Cloister is offline
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Quote:
Originally Posted by MGN View Post
How does the accounting department determine the IBNR for a given accident year at a given development age and valuation date? Is that based on the actuary's selection at that point?

It seems like the only purpose of observing "Ultimate" losses at succesive valuations is to see how close the actuaries were to being right at the earlier periods. Otherwise the process that Jerry, Buck and the OP are describing does not make a whole lot of sense to me.
For something like NCCI, it does make sense - it allows them to see if the aggregated industry ultimate loss estimates tend to go up (or down) as years develop.
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Old 04-01-2010, 02:48 PM
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Quote:
Originally Posted by Cloister View Post
For something like NCCI, it does make sense - it allows them to see if the aggregated industry ultimate loss estimates tend to go up (or down) as years develop.
Ya I can see that, but again that is directed at evaluating the quality of IBNR estimates specifically.
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