SOP.UnpaidClms

Reading: Statement of Principles Regarding Property and Casualty Unpaid Claims Estimates, Casualty Actuarial Society, adopted November 2014, released May 2015.

Study Tips

This reading is only 2 pages. It provides definitions of basic terms like claim and coverage as well as 3 Principles regarding unpaid claims estimates. The definitions are obvious and you can take a few minutes to scan them if you'd like (link provided below.) The only things you specifically have to memorize are the 3 principles.

Estimated study time: 30 minutes (not including subsequent review time)

BattleTable

Based on past exams, the main things you need to know (in rough order of importance) are:

• how to assess reserving issues using common sense

reference	part (a)	part (b)	part (c)	part (d)
E (2013.Fall #15)	reserve study design: - considerations	Friedland06.Diagnostics	Friedland06.Diagnostics	Friedland06.Diagnostics

In Plain English!

Principles

Here's a link to the source text:

STATEMENT of PRINCIPLES:   Unpaid Claims Estimates

Here's the essence of the 3 principles: (these are my own words)

Principle 1

• An unpaid claims estimate is reasonable if you have used reasonable assumptions & methods, and your results imply consistency with other available information (Ex: with metrics like frequency & severity, comparison to prior quarters, comparison to industry data.)

Principle 2

• An unpaid claim estimate is uncertain because it's only a statistical prediction based on currently available information.

Principle 3

• Paid claims will likely differ from the unpaid claims estimate. We won't know for certain until all claims have been settled.

A good test of your understanding is to see if you can take take the principles as stated in the source text and restate them in your own words. That's all I did above and I feel like I get what they're trying to say without having to memorize them.

Comments

Comment 1: To me, principle 3 doesn't seem necessary because it says essentially the same thing as principle 2. It seems obvious that paid claims will likely differ from the unpaid claims estimate because by principle 2 we know that our estimates are inherently uncertain.

Comment 2: Although the part (a) of the 2013.Fall exam problem specifically references this Statement of Principles, the answers in the examiner's report have nothing to do with them. The accepted answers relate more to discussions from Friedland on concepts like mix of business and homogeniety & credibility. (Note however that this Statement of Principles has been updated since this exam problem appeared in 2013.)