Spring 2019 - Q22
Hi Graham - I understand the Examiner's report except for one part. Can you help me understand why it is appropriate to apply the Unadjusted Tail Factor for LARGE claims of 1.200 to a triangle of adjusted reported LARGE Claims when we continue to see newly reported LARGE open claims for AY 2015? That would suggest to me that new claims coming in will be set at these higher case adequacy levels. If that is the case, then wouldn't it be inaccurate to blindly assume that the Unadjusted (Age 48) Tail Factor= Adjusted (Age 48) Tail Factor for LARGE Claims?
Comments
The short answer is that there may not be a good alternative since the problem didn't provide much information concerning tail factors. It's certainly reasonable to consider an adjustment to the tail factor and I'm sure they wouldn't have deducted points for doing so but it didn't seem like they were testing that. Of course, you wouldn't know that at the time of the exam.
Thinking through it, I might have assumed new claims during CY 2018 and subsequent would be reserved at the higher level so a more appropriate tail factor would be something less than 1.20. (If case reserves are more adequate, there would be less development.) I wouldn't have any way of estimating how much less however. You could use something like 1.18 and state that there is no way to estimate it precisely but it would show you thought about the tail factor (if they were even grading on that.)