8/10/2013
Why do we use Then basis triangles for Incurred Chain Ladder (ICL) and Now basis for Projected Case Estimates (PCE)??
Ans (courtesy of TL):
Ans (courtesy of TL):
Because for ICL, the chain ladder requires the full history of the claim to be able to project the trend. So the Then basis has all the development (or transitions) included in the triangle for that particular segment. (e.g. Reported as Large and how each of the large claims have developed).
As for the PCE, it is all about the most recent view of case estimates and the proportion that we are going to pay out, so the transitions don't matter as much.
So the now basis triangles – which is the most up to date view of the segment, gives us exactly what we need (i.e. most up to date view of the case estimates for that segment). And that's why we use now triangles for PCE.
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8/10/2013
In our small then models, we use PCE for old periods and PPCF for new periods. The question is what is the cut off point/ when do we switch over from one model to the other? Xuan noticed that we had different cut off points for Direct claims vs Legally Represented claims.
ANS (courtesy of TL):
Legally represented claims usually take longer to resolve, sometimes because the claim is more complicated, and also cuz lawyers and etc make the process harder/longer. So we typically expect represented claims to finalise/settle slower. Whereas direct claims usually resolve quicker and settle for less $$, so if we go with the mindset that PCE is used for "old claims" with more development and PPCF for "newer claims" with lesser development, we would expect the number of accqtrs for PCE would be longer for the DIRECT than that for the REPRESENTED. (i.e. less "recent qtrs." Attributed to the PPCF for directs, and more for represented), since for the directs, the new claims get "older" (i.e. resolve) faster.
TL's tactic was to look in the Accyr PPCF model and look at 2010_2011 Fyr and see how much of that has already settled, along with the payment pattern by the time it comes to about 19 qtrs (that's how long the PPCF is used for atm) – 82% already is finalised according to payment pattern, and about 97% of claims are already finalised in the accyr model from 2010_2011. (currently we are in 2013_14) So TL recommended we use no more than 3 yrs worth for PPCF, and then PCE from that point and back in time.
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