IAI Actuarial Core Principles · Economic Modelling · Run-off triangles
A cumulative paid claims triangle has accident year 2022 with cumulative paid of Rs 400 lakh at development year 1 and Rs 500 lakh at development year 2. Accident year 2023 has Rs 480 lakh at development year 1 only. Ignoring later years, using the development factor from 1 to 2 estimated as the ratio of the year 2022 figures, what is the projected cumulative paid for 2023 at development year 2 (Rs lakh)?
The projected cumulative paid for 2023 at development year 2 is Rs 600 lakh. The development factor is 500/400 = 1.25, and applying it to 480 gives 600. Adding the absolute increment of 100 would be inconsistent with chain ladder.
- A540
- B600Correct
- C580
- D620
- 560
Explanation
Factor = 500/400 = 1.25. Projection = 480 × 1.25 = 600. Adding the 100 lakh incremental of 2022 to 480 gives 580, which wrongly assumes the same absolute increment rather than proportional development.
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