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.

answers:

(a) no

(b) no

(c) no