A.2-3: Claim Liability Duration
Can you explain how the % PAID in period is calculated? why are we dividing by 70%? and also how the 0.5 or 1.5 lag are derived?
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Can you explain how the % PAID in period is calculated? why are we dividing by 70%? and also how the 0.5 or 1.5 lag are derived?
Comments
You pay 25% of claims in the period 12-24. However, there are only 70% of claims remaining at the end of month 12. This means that the proportion of the remaining claims that you have to pay is 0.25/0/7 as 30% of the claims have already been paid.
Assuming payments are made in the middle of the year is a common assumption. It is not a derivation