Friedland08.ExpectedClms

BattleTable

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

• fact A...
• fact B...

reference	part (a)	part (b)	part (c)	part (d)
E (2016.Spring #16)	unpaid claims: - expected claims method	Friedland07.Development	Friedland09.BornFerg
E (2015.Fall #17)	Friedland07.Development	ultimate claims: - expected claims method
E (2015.Spring #18)
E (2014.Fall #15)
E (2014.Spring #19)

In Plain English!

Example A: Very Easy

Recall that LR normally stands for Loss Ratio, and that this is the same things as CR or Claims Ratio. Let ECR stand for ultimate Expected Claims Ratio

ECR is a projection, or an expectation of what the loss ratio or claims ratio is going to be in a future period. Let's start with a very simple example of the ECR method. Suppose you're given:

ECR = 75% (based on historical CRs from the past few years being all between 70% and 80%)

EP = 1,000

Then by the ECR method:

ultimate claims   =   ECR x EP   =   75% x 1,000   =   750

To say this in words, if you think the ultimate claims ratio for a particular year is going to be 75%, and you also know the EP is 1,000, then the ultimate claims (in dollars) is obviously just the product of ECR and EP.

Example B: Estimating ECR

In the previous example the actuary came up with an estimate of 75% for the ECR just by looking at past years and taking an educated guess. But estimating the ECR is the key to this method so let's see if we can be a little more sophisticated. Suppose you're given:

AY	OLEP	ultimate claims
2017	1,000	750
2018	1,000	750
2019	1,000	750
2020	1,000	750
2021	1,000	?