Spring 2014 Q17/18

jptardif2

Hi Graham,

I'm trying to understand why when calculating the Investment Income from Unpaid that goes into the Discounted Excess/Deficiency Ratio, we do not include the first calendar year. An example of that would be Spring 2014 Q18. In contrast, in Spring 2014 Q17, we do need the first year Investment Income from Unpaid in order calculate the Discounted Loss Ratio. Does that make sense?

Thanks!

graham

Yes, your question makes perfect sense. This is actually a common question and I've had it several times before in various different forms. There is a difference between these problems:

• For the excess(deficiency) problem we don't care about investment income during the first calendar year. We're calculating the ratio for the end of the first calendar year using the latest available data. To determine excess or deficiency for the end of the first year, we only need to know the investment income we're going to earn in the future. (The investment income from that first year would already have been added to the APV for the end of the first year.) Note that we also don't use the paid values during the first year for the same reason.
• But for the loss ratio, we want to include all calendar years starting at the beginning of the first calendar year.

I hope that's helps. Let me know if you want to discuss further.

jptardif2

Hi,

Tbh I should have thought about it a bit more before posting. This makes total sense.

Thanks!