2018.Fall #16 UCAE in Runoff vs in Liab

battleactsbattleacts
in CCIR.ARinstr

I am trying to understand the relation across those tables. For example in runoff table, AY2016 net UCAE at end of CY2016 is 1200. In Asset/Liab tables, CY2016 net UCAE is 4477-1760=2717. Should there be some relation between those tables?

Comments

  • battleactsbattleacts

    I feel I don't quite understand "runoff". :( Or maybe you can explain "runoff".

  • grahamgraham

    You had it almost correct. You just forgot to include the include IBNR of 1517 right underneath the UCAE of 1200 in the runoff table. Then 1517+1200=2717 which is that same as 4477-1760.

    (Note that in my example problems on Alphabet City I wasn't as careful when I constructed the problems so the numbers don't balance like they should between the runoff table and the assets/liabilities. Sorry about that.)

    Runoff basically refers to the development tail after the accident year ends. It is claims activity past 12 months due to accidents that occurred in the first 12 months but either weren't reported in the first 12 months or are still developing.

  • bkmlocksbkmlocks

    Hello Graham, for your response above relating to 1517 + 1200 = 2717 being the same as 4477 -1760 ; does this hold ONLY because we do not have any Unpaid Claims from AY 2015 or before ?

    (4477 -1760) represents Net APV (Loss & LAE) for AY's 2016 and Prior @ EOY 2016.
    1517 + 1200 represents Net APV (Loss & LAE) for AY 2016 **only **@ EOY 2016.

    I asking because I am a bit confused why similarly 1159 + 900 does not equal B - A calculated. My thinking is that this is because 1159 + 900 does not include unpaid claims from AY 2017.

    So if we wanted to match B - A calculated using values from PG 60.41, we would need UCAE IBNR (AY 17 CY 17) which are n/a here + 1159 + 900 ?

  • grahamgraham

    Yes, that's all correct but you actually do have enough information to match the B-A value of 4817. You can use the AY 2017 & prior column in 60.41 because 2100+K=2100+2716=4816. (Off by 1 due to rounding.

    The concept (which you might already know so apologies if you do!) is that the balance sheet shows only CY values not AY values and the CY values include all AYs. But page 60.41 does show AY information so you have to sum across all AYs in 60.41 to get the CY values shown on the balance sheet.

  • BastienBastien
    edited April 2022

    Hi,
    I have calculated my APV(Unpaid, net) as of 2017 for each AY separately. I got APV(Unpaid, net, AY2016 at 2017) = 2076$ (feel free to double check that).
    Is this expected to be the same as UCAE+IBNR from AY2016 at 2017 (900 + 1159 = 2059)?
    I am a bit confused because my numbers don't match, but is the reasoning good?

  • Staff-T1Staff-T1
    edited April 2022

    Your calculation is incorrect:

    • Unpaid Claims + Claim PFaD = 3000 X1.15X0.6/1.0234 = 2023
    • Interest Rate PFaD = 3000X0.6X(1/1.0159 - 1/1.0234) = 13
    • Reinsurance PFaD = 3000X0.4X0.02/1.0234 = 23

    2023 + 13 + 23 = 2059

  • BastienBastien
    edited April 2022

    Hi @Staff-T1!
    Could you please elaborate on why you discounted by 1.0234^(-1) instead of 1.0234^(-0.5). I thought discounting unpaid by the average date was the way to go to calculate APV(Unpaid). Is there something different here?
    Doing it this way would get us gross APV (both years) of 7869 instead of 7936 (does not match the solution)
    Thanks!

  • Staff-T1Staff-T1

    You can do it either way as long as it is not explicitly stated. The examiner's report itself said discounting either at mid-year or year-end is acceptable

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