You can never calculate a margin for the most recent accident year. The reason is that to calculate an excess(deficiency) margin, you have to have at least 1 other data point for comparison.
If you think about what you're really calculating here, the excess(deficiency) of the reserves at any given point in time, you don't know the true answer until the claim is closed. Then you can go back to past years and check at any given time whether your reserves were too high, too low, or just right.
In this exam problem, where you can calculate the margin for AY 2014 and AY 2015, you are really just approximating the margin based on the latest available reserves as of CY 2016. If the claims aren't closed, you don't know whether they will develop up or down in coming years.
But for AY 2016, you only have 1 data point for the reserves, 25000. If at the end of CY 2017, the reserves went up 5,000 to 30,000 and you had payments of only 2,000, then at the end of 2017, you could say the reserves were originally deficient by 3,000. But you could not have done that calculation without that 2nd data point. Then at the end of CY 2018, you'll have a 3rd data point for the reserve level and you can recalculate the margin for AY 2016 and the end of CY 2018. And so on...until the claim is closed, at which you can look back and know exactly whether your reserves were too high at any given point in time.
Comments
You can never calculate a margin for the most recent accident year. The reason is that to calculate an excess(deficiency) margin, you have to have at least 1 other data point for comparison.
If you think about what you're really calculating here, the excess(deficiency) of the reserves at any given point in time, you don't know the true answer until the claim is closed. Then you can go back to past years and check at any given time whether your reserves were too high, too low, or just right.
In this exam problem, where you can calculate the margin for AY 2014 and AY 2015, you are really just approximating the margin based on the latest available reserves as of CY 2016. If the claims aren't closed, you don't know whether they will develop up or down in coming years.
But for AY 2016, you only have 1 data point for the reserves, 25000. If at the end of CY 2017, the reserves went up 5,000 to 30,000 and you had payments of only 2,000, then at the end of 2017, you could say the reserves were originally deficient by 3,000. But you could not have done that calculation without that 2nd data point. Then at the end of CY 2018, you'll have a 3rd data point for the reserve level and you can recalculate the margin for AY 2016 and the end of CY 2018. And so on...until the claim is closed, at which you can look back and know exactly whether your reserves were too high at any given point in time.
Make sense! Thanks Graham!