Excess Deficiency Calculation in 60.35 vs 60.45
Hello,
I am trying to relate the two excess/deficiency calculations to each other and understand them from a reserving viewpoint. In page 60.35, do the liabilities in columns 22 and 26 correspond to case reserves, and is this why the paid amount in column 24 must be subtracted?
Also, does “net” in column 24 mean net of reinsurance?
Thanks!
Comments
Well, it's always a little bit of a guess because the CCIR instructions don't always provide all the details. I believe however that the liabilities in columns (22) & (26) include IBNR as well as case reserves.
The reason for subtracting the paid amounts has to do with understanding what the excess/deficiency value is telling you. Theoretically, the paid amounts offset any decrease in reserves. If you look at my example in that section:
you see that the reserves dropped by 35 which almost offset the paid value of 30. In this example, the reason the drop in reserves was more than the paid amount was that the reserves were too high and the claims settled for $5 less than the original reserve. If you didn't subtract the paid amounts, then all you'd be doing is tracking the decrease in reserves over time. In contrast, the excess/deficiency calculation gives you a snapshot of how accurate your reserves are at any given time (too high, too low, or just right) using the latest available information.
About column (24): I couldn't find anything that defined what "net" means in this case, but I suspect it means the same thing as "net" on page 60.45 which appears to mean net of reinsurance as you said. But whenever I see "net" applied to paid amounts, I think there's a possibility that it also could mean net of salvage and subrogation.
Just to add - whenever they say LIC it means case + IBNR. Also I believe that net means net of reinsurance but not net of Salvage and subrogation!
Thx @Staff-T1.
Hi @graham,
In example 60.45, why do we not use AY 2022?
I understand that we should ignore the current AY. However, since we have both prior and current year for AY 2022, it seems to me that we are currently CY 2023.
Following with AndrewL's question, the battle quiz looks different from the example 60.45.
The quiz did include AY2022's data at the end of CY2023.
Hi @AndrewL
That was a typo. There shouldn't be an entry for AY 2022 in column (09). The numbers below are different but the table should have looked like this: (I fixed it for the web-based problem which should answer @HateExams99 )