Emerging experience

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in CIA.MfAD

Hi, it might be a stupid question: what is emerging experience? Would you mind give some example? To my understanding, emerging markets refers to the new markets or new industries (which is unknown), so how come emerging experience (less familiar) require less margin?

Comments

  • Staff-T1Staff-T1

    Hi,

    Emerging experience in the context of this paper refers to the actual loss experience that starts to come in as an accident year develops.
    For example:
    Accident year @ 12 months: Incurred = 2000, IBNR = 8000
    Accident year @ 24 months: Incurred = 5000, IBNR = 5000
    At 12 months, the accident year is still immature and we have to project 8000 in IBNR. There is plenty of uncertainty in our estimate of Ultimate Losses here so the risk margin needs to be higher.
    At 24 months, the accident year is more matured and we only need to project 5000 in IBNR. As our loss experience emerges, there is less uncertainty in the estimate of ultimate losses as incurred increases and IBNR decreases. Thus we will need a smaller risk margin with emerging experience.

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