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Speed of Finalization of Claims and Claims Runoff Analysis

Published online by Cambridge University Press:  29 August 2014

G. C. Taylor
G. C. Taylor*
Affiliation:
E. S. Knight & Co., Consulting Actuaries, Sydney, Australia
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Summary

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To some extent, this paper provides theoretical back-up for Taylor's (1980b) see-saw method of analysis of outstanding claims.

Section 3 deals with the payments per claim finalized (PPCF) method. This assumes PPCF to be a function of development year only.

Section 4 carries out a theoretical investigation of the validity of this assumption. It is found that the assumption is not justified in general; that PPCF can (and usually will) be sensitive to changes in speed of finalization of claims; and that this sensitivity will depend on the convexity properties of PPCF as a function of development year. The analysis is made on the basis of the so-called hypothesis of invariant order.

Section 5 develops the see-saw method from this theoretical basis, although Section 7 is at pains to point to situations in which that method remains applicable despite violation of the hypothesis of invariant order.

Section 6 provides a numerical example.

Type
Research Article
Information
ASTIN Bulletin: The Journal of the IAA , Volume 12 , Issue 2 , December 1981 , pp. 81 - 100
Copyright
Copyright © International Actuarial Association 1981

References

REFERENCES

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Sawkins, R. W. (1979a). Analysis of claim run off data—a broad view. Institute of Actuaries of Australia General Insurance Seminar 1, Thredbo, December 1978, 30–60.Google Scholar
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Skurnick, D. (1973). A survey of loss reserving methods. Proceedings of the Casualty Actuarial Society, 60, 16–62.Google Scholar
Taylor, G. C. (1980a). A Reduced Reid method of estimation of outstanding claims. Institute of Actuaries of Australia General Insurance Seminar 2, Broadbeach, November 1980 263–334.Google Scholar
Taylor, G. C. (1980b). Application of actuarial techniques to non-life insurance: establishment of provisions for outstanding claims. The application of mathematics in industry. Eds. Anderssen, R. M. and de Hoog, F. R.. Proceedings of a seminar organised by the Division of Mathematics and Statistics, CSIRO, and Pure and Applied Mathematics, The Faculties, Australian National University, Canberra, 3 December 1980.Google Scholar