Harder CC Problem #2
I don't understand why we had to apply the Tort reform factors directly in the triangle. In chapter 8 for estimating the ECR with Tort reform, we applied the CDF factors separately to the reported claims (The CDFs i believe were derived from reported claim without the Tort reform adjustment) and then applied the tort reform adjustment. Wouldn't that be the same case in this problem?
Comments
I see what you mean because the question doesn't tell you where the CDFs came from. Are they from the unadjusted triangle? Or did they already make the necessary adjustments to the reported loss triangle then calculate the CDFs based on the adjusted triangle? You don't know.
After looking at these questions side by side, I don't think the chapter 8 problem on the ECR method (2014.Fall Q15) is a good problem. I'm wondering if the examiners realized that and then decided to give you the whole triangle in the chapter 10 problem (2017.Spring Q23) just to avoid the ambiguity about where the CDFs came from.
I think the method they used in the 2017 problem is better, but of course you couldn't do it without being given the whole triangle, which you were not given in the 2014 problem. The tricky part in the 2017 problem is that not all cells in each row need to be adjusted so you need the whole triangle to make the data adjustments only to the appropriate cells.
In the 2014 problem you had to make an assumption about how the tort reform affects AY 2012 (a weighted average) because the tort reform occurred on July 1, 2012 so some reported claims would be affected and some wouldn't. (And you would actually need a half-year triangle to make the adjustments to the full triangle using the method from the 2017 problem.)
You could try doing the 2017 problem using the method from the 2014 problem (just pretend you're only given the last paid loss in each row) and see how it compares to the official solution to the 2017 problem. It might be close.
This makes sense and is helpful, thank you!