Friedland10.CapeCod

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

Chapter 10: Cape Cod 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 #19)	ultimate claims: - reported Cape Cod
E (2019.Spring #18)	ultimate claims: - reported Cape Cod	identify scenario: - paid CC works better
E (2018.Spring #8)
E (2017.Fall #21)	ultimate: - Cape Cod
E (2017.Spring #23)	ultimate: - paid devlpt	ultimate: - Cape Cod
E (2016.Spring #18)	Cape Cod vs B-F: - compare	Cape Cod vs B-F: - adjustments to rptd loss	Cape Cod vs B-F: - adjustments to EP	court decision: - suggest better method
E (2015.Spring #17)	IBNR: - Cape Code adjustments
E (2014.Spring #15)	IBNR: - B-F	IBNR: - Cape Cod	B-F vs Cape Cod: - rising claims, thin data
E (2013.Fall #20)	IBNR: - Cape Cod

In Plain English!

Example xxxx: A Hard Problem

Once you understand the basic version of the CC method, here's a harder problem for you to try. It's harder for 2 reasons:

• they don't give you the rate level adjustment factors directly – you need knowledge of the pricing material to calculate them yourself
• they don't give the CDFs (Cumulative Development Factors) – you have to calculate them yourself from the data triangle but there's a very trick catch because you first have to adjust the triangle to take into account the tort reform

CC Method Concepts

• similar to BF - difference is in how ECR is chosen
  • BF uses results of ECR method (incorporates judgment)
  • CC uses a formula (no judgment involved)
• often use in reinsurance (why?)
• assumption: unreported claims will develop based on expected claims
• ads:
  • uses reported claims in the calculation of the ECR, therefore it will respond (at least partially) to changes in claims ratios
  • (note that if the CR changes over time, increases or decreases, then this trend may not be reflected in the CC formula for ECR)
• disads:
  • dependent on the availability and accuracy of the rate level adjustment factor (can use without adjusting for CRL but then lose accuracy)
  • thin data increases volatility (should then use BF because we can incorporate judgment)