View source for Friedland06.Diagnostics

'''Reading''': Friedland, J.F., Estimating Unpaid Claims Using Basic Techniques, Casualty Actuarial Society, Third Version, July 2010. The Appendices are excluded.

'''Chapter 6''': The Development Triangle as a Diagnostic Tool

==Pop Quiz==

What are the 3 dimension of an accident year development triangle? <span style="background-color: lightblue; border-radius: 5px;"> ''[[Friedland06.Diagnostics#POP_QUIZ_ANSWERS |Click for Answer]]''&nbsp;</span>

==Study Tips==

==BattleTable==

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

* using diagnostics to <u>analyze data</u> and <u>make decisions</u> regarding reserving methods...
:: - ''combining data''
:: - ''settlement rate changes''
:: - ''case reserve adequacy changes''
:: - ''other operational changes''

: {| class='wikitable' style='width: 1000px;'

|-
! style='width: 175px;' | reference !! style='width: 175px;' | part (a) !! style='width: 175px;' | part (b) !! style='width: 175px;' | part (c) !! part (d)

|-
|| [https://www.battleacts5.ca/pdf/Exam_(2017_1-Spring)/(2017_1-Spring)_(15).pdf <span style='font-size: 12px; background-color: yellow; border: solid; border-width: 1px; border-radius: 5px; padding: 2px 5px 2px 5px; margin: 5px;'>E</span>] <span style='color: red;'>'''(2017.Spring #15)'''</span>
|| '''paid/rptd claims ratio''': <br> - interpretation
|| '''paid/rptd counts ratio''': <br> - interpretation
| style='background-color: lightgrey;' |
| style='background-color: lightgrey;' |

|-
|| [https://www.battleacts5.ca/pdf/Exam_(2016_1-Spring)/(2016_1-Spring)_(21).pdf <span style='font-size: 12px; background-color: yellow; border: solid; border-width: 1px; border-radius: 5px; padding: 2px 5px 2px 5px; margin: 5px;'>E</span>] <span style='color: red;'>'''(2016.Spring #21)'''</span>
|| '''case reserve adequacy''': <br> - suggest diagnostic
|| [[Friedland13.BerqSherm]]
| style='background-color: lightgrey;' |
| style='background-color: lightgrey;' |

|-
|| [https://www.battleacts5.ca/pdf/Exam_(2016_2-Fall)/(2016_2-Fall)_(16).pdf <span style='font-size: 12px; background-color: yellow; border: solid; border-width: 1px; border-radius: 5px; padding: 2px 5px 2px 5px; margin: 5px;'>E</span>] <span style='color: red;'>'''(2016.Fall #16)'''</span>
|| [[Friedland05.Triangles]]
|| [[Friedland05.Triangles]]
|| '''settlement rate change''': <br> - suggest diagnostic
|| [[Friedland07.Development]] <br> [[Friedland13.BerqSherm]]

|-
|| [https://www.battleacts5.ca/pdf/Exam_(2015_1-Spring)/(2015_1-Spring)_(16).pdf <span style='font-size: 12px; background-color: yellow; border: solid; border-width: 1px; border-radius: 5px; padding: 2px 5px 2px 5px; margin: 5px;'>E</span>] <span style='color: red;'>'''(2015.Spring #16)'''</span>
|| '''operational change''': <br> - suggest diagnostic
|| [[Friedland07.Development]] <br> [[Friedland13.BerqSherm]]
| style='background-color: lightgrey;' |
| style='background-color: lightgrey;' |

|-
|| [https://www.battleacts5.ca/pdf/Exam_(2014_2-Fall)/(2014_2-Fall)_(14).pdf <span style='font-size: 12px; background-color: yellow; border: solid; border-width: 1px; border-radius: 5px; padding: 2px 5px 2px 5px; margin: 5px;'>E</span>] <span style='color: red;'>'''(2014.Fall #14)'''</span>
|| [[Friedland05.Triangles]] 
|| '''operational change''': <br> - suggest diagnostic 
| style='background-color: lightgrey;' |
| style='background-color: lightgrey;' |

|-
|| [https://www.battleacts5.ca/pdf/Exam_(2013_2-Fall)/(2013_2-Fall)_(15).pdf <span style='font-size: 12px; background-color: yellow; border: solid; border-width: 1px; border-radius: 5px; padding: 2px 5px 2px 5px; margin: 5px;'>E</span>] <span style='color: red;'>'''(2013.Fall #15)'''</span>
|| [[SOP.UnpaidClms]]
|| '''combining data''': <span style="color: red;">'''<sup>1</sup>'''</span> <br> - suggest diagnostics
|| '''combining data''': <br> - argue for or against 
|| '''combining data''': <br> - argue for or against

|}

: <span style="color: red;">'''<sup>1</sup>'''</span> Parts (b), (c), (d) of this question require a synthesis of knowledge from several different chapters. You can look at it now but you may not be able to answer all of it until you've covered the chapters on different reserving methods.

==In Plain English!==

===Diagnostics===

When doing a reserve analysis, here's the type of data you'd like to have: ''(might not all be available for smaller companies.)''

* paid claims, reported claims
* paid counts, reported counts
* Earned Premiums, average annual rate changes

From there you can calculate these diagnostic triangles:

:{| class='wikitable'
|-
! diagnostic !! common names !! useful for investigating...
|-
|| claims / EP || - claims ratio <br> - loss ratio || ...
|-
|| (paid claims) / (reported claims) || || ...
|-
|| (paid counts) / (reported counts) || || ...
|-
|| (reported claims) / (reported counts) || - average reported claim <br> - reported severity || ...
|-
|| (paid claims) / (paid counts) || - average paid claim <br> - paid severity || ...
|-
|| (reported claims) &ndash; (paid claims) <br> <SPAN STYLE="text-decoration:overline">(reported counts) &ndash; (paid counts)</span> || average case outstanding || ...
|}

===Background Information===

==POP QUIZ ANSWERS==

Each cell in an accident year triangle is identified by 3 dimensions:
# The row labels are '''Accident Years''' and you'll often see the abbreviation '''AY'''.
# The column labels are '''Development Period''' or '''Age'''. Those terms are interchangeable. In this triangle the periods are <u>months</u> and that's very common.
# The ''[https://mathworld.wolfram.com/SkewDiagonal.html skew diagonals]'' represent '''Calendar Year''', abbreviated '''CY'''

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