2013 Fall 23c
I understand the components of this sentence when considered piece-by-piece but having a hard time putting it altogether when considered as a whole. See attached.
My interpretation here is that "IF we project loss ratios, where projection of loss ratios is done by using the frequency and severity projections, from each of the methods used, listing here:
Reported Development
Paid Development
Expected Loss
Reported BF / Paid BF
Reported BS / Paid BS
AND
if there is, indeed, a strengthening in case reserves with no deterioration of claims experience, AND no changes to claims settlement speed, then the PROJECTED LOSS RATIOS should be stable compared to historical years."
Is "this" an accurate rephrase?
The quotes around 'this' in the prior line should correspond to the antecedent beginning with the words 'My interpretation...'
Cj.
Comments
I think the quote you provided is correct but it's a bit strange the way it was phrased and I'm not sure your rephrasing quite captures the intent. (I'm also not sure where you got this quote from. I couldn't find it in the Friedland text.)
When the quote says the "projected" loss ratios should be stable, I think it might have been clearer to say the "true" loss ratios should be stable. So if your "projected" loss ratios using the methods you listed above are NOT stable across all AYs, then your selections (LDFs, trends,...) might not be reasonable. That would be a signal to go back and adjust your analysis.
For example if case reserves strengthen, then some methods like the reported development method will tend to overestimate the ultimate loss ratio, and estimates for recent years will be higher than for past years. In other words, your projected loss ratios are NOT stable and are therefore not reasonable (based on your knowledge that nothing else changed.) You would have to go back and make adjustments to your LDF selections, or better yet, either use a method that isn't affected by case reserve strengthening (like paid development) or use a method that adjusts for case reserve strengthening (like B-S reported.)