Friedland12.CaseOS

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

Chapter 12: Case Outstanding Development Method

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.Fall #18)	unpaid: - case O/S method	scenario where it works: - case O/S method
E (2017.Fall #22)	unpaid: - case O/S method	identify limitations: - in method for part (a)
E (2017.Spring #19)	expctd incremental clms: - rptd devlpt method	expctd incremental clms: - paid to prior case O/S	RY versus AY: - case O/S method
E (2016.Fall #19)	unpaid: - case O/S method	industry benchmarks: - reasonable?	unpaid estimate: - reasonable?
E (2016.Spring #17)	unpaid: - case O/S method	Case O/S method: -appropriate for part (a)?
E (2014.Spring #23)	cumulative % rptd: - calculate	unpaid: - case O/S method
E (2013.Spring #17)	unpaid: - case O/S method	identify limitations: - case O/S method	scenario where it works: - case O/S method

In Plain English!

There are 2 case O/S (case outstanding) methods and we discuss the hard method first, which normally wouldn't be logical. The reason we do this is that method #1 appears first in the source text but also because it appears more frequently on the exam than method #2. You'll see that the 2 methods are not really related, other than that they both used case O/S data in some way, so there's no advantage in covering the easy method first.

Case O/S Method #1 (Hard Method)

Note: Sample answer 1 in the examiner's report has an error in the next-to-last step where they calculate paid-on-case for different ages. The value for 12, 36, and 48 months are incorrect and the value for 60 months is missing. See Alice's solution for the correct values.

Case O/S Method Concepts

Pop quiz:

(a) Will methods that use paid data be accurate when there has been a change in the settlement rate of claims?

(b) Will methods that use reported data be accurate when there has been a change in case reserve adequacy?

(c) Based on you answers to (a) and (b) will case O/S method #1 be accurate in either of those 2 situations?

The moral is that more complicated methods have more ways to fail. It's true that more sophisticated methods allow the actuary to make explicit assumptions for things like inflation, frequency & severity trends, court adjustments, and probably many others, but each assumption magnifies the parameter risk. That's why the good old development method, with a dash of common sense, is so common.

Reserving methods that simply pile on the parameters are subject to the law of diminishing returns. Refer somewhere to my own research using SimPolicy.

answers:

(a) no

(b) no

(c) no