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? Click for Answer 

BattleTable

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

• using diagnostics to analyze data and make decisions regarding reserving methods...

- combining data

- settlement rate changes

- case reserve adequacy changes

- other operational changes

reference	part (a)	part (b)	part (c)	part (d)
E (2017.Spring #15)	paid/rptd claims ratio: - interpretation	paid/rptd counts ratio: - interpretation
E (2016.Spring #21)	case reserve adequacy: - suggest diagnostic	Friedland13.BerqSherm
E (2016.Fall #16)	Friedland05.Triangles	Friedland05.Triangles	settlement rate change: - suggest diagnostic	Friedland07.Development Friedland13.BerqSherm
E (2015.Spring #16)	operational change: - suggest diagnostic	Friedland07.Development Friedland13.BerqSherm
E (2014.Fall #14)	Friedland05.Triangles	operational change: - suggest diagnostic
E (2013.Fall #15)	SOP.UnpaidClms	combining data: 1 - suggest diagnostics	combining data: - argue for or against	combining data: - argue for or against

¹ 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!

The development triangle is an important diagnostic tool. Diagnostics covered in this chapter include: 1) Visually examining the Reported and Paid claims development triangles. 2) Triangle of Reported Claims/Earned Premium (on-level if available). 3) Triangle of Paid Claims/ Earned Premium (on-level if available). 4) Triangle of Paid Claims/Reported Claims. 5) Visually examining the Reported and Closed claim counts development triangles. 6) Triangle of Closed Counts/Reported Counts. 7) Triangle of Reported Claims/Reported Counts (i.e., avg. reported = reported severities). 8) Triangle of Paid Claims/Closed Counts (i.e., avg. paid = paid severities). 9) Triangle of [Reported– Paid Claims] / [Reported -Paid Counts] (i.e., avg. case outstanding).

POP QUIZ ANSWERS

Each cell in an accident year triangle is identified by 3 dimensions:

1. The row labels are Accident Years and you'll often see the abbreviation AY.
2. The column labels are Development Period or Age. Those terms are interchangeable. In this triangle the periods are months and that's very common.
3. The skew diagonals represent Calendar Year, abbreviated CY

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