Friedland07.Development

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

Chapter 7: Development Technique(or Chain Ladder Technique)

Study Tips

This is a long chapter, almost 60 pages, but the development method, also called the chain-ladder method, is not hard. Once you practice it a few times, you'll get the hang of it. It might already be familiar to you anyway. The source text is organized like this:

first 15 pages: (page 84-98) mechanics of the development method

• this the single most important topic on the Exam 5 syllabus
• source text explains the method in words but it's simpler just to look at the few numerical examples (provided in this wiki article)

next 8 pages: (page 98-105) influences of a changing environment

• how changes in the environment affect the accuracy of the development method (this is important)
• I have used my own policy & claims simulation software called SimPolicy to create illustrative examples
• video explanations are provided for selected examples

last 25 pages: (page 106-130) PDFs of Excel spreadsheet to illustrate the material

• these examples in the source text are very detailed (maybe a little too detailed)
• you can take a look at these if you'd like but make sure you look at my examples first

Note: If you're reading this chapter as part of your first pass through the pricing material, you only need to know the first 15 pages on the mechanics of the method. If you're studying the reserving material, then you should study the whole chapter.

Estimated study time: 2-5 days depending on whether you're covering this material for pricing or reserving (not including subsequent review)

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 (2019.Spring #16)	ultimate: - rptd devlpt	industry data: - considerations	impact: - of operational change
E (2019.Spring #19)	ultimate: - rptd devlpt (tort reform)	Friedland09.BornFerg
E (2018.Spring #20)
E (2017.Fall #17)
E (2017.Fall #19)	ultimate: - rptd devlpt	diagnostic: - operational changes	accuracy issues: - unpaid claim data
E (2017.Spring #20)
E (2016.Fall #25)
E (2016.Spring #14)
E (2016.Spring #16)	Friedland08.ExpectedClms	ultimate: - paid devlpt	Friedland09.BornFerg
E (2015.Fall #22)
E (2015.Spring #23)
E (2014.Spring #13)
E (2013.Spring #16)

In Plain English!

Let's start by looking at a simple example of a triangle of cumulative paid claims.

AY ! 12 ! 24 ! 36 ! 48
48 |140 |201 |240
48 |140 |201
48 |140
48