IAI Actuarial Core Principles · Economic Modelling · Run-off triangles
A cumulative triangle has two accident years with data at development years 0 and 1: AY2023 (Rs 200 lakh, Rs 260 lakh) and AY2024 (Rs 300 lakh, to be projected). Using the volume-weighted chain ladder with only AY2023 available for the 0-1 factor, and assuming no further development after year 1, what is the projected ultimate for AY2024 in Rs lakh?
The projected ultimate is Rs 390 lakh. The development factor from year 0 to year 1 is 260 divided by 200, equal to 1.3, and applying it to AY2024's 300 gives 390. Adding the earlier year's increment of 60 would ignore that the method is multiplicative.
- A360
- B390Correct
- C300
- D330
- 420
Explanation
Factor = 260/200 = 1.3. Projected ultimate for AY2024 = 300 x 1.3 = 390. Adding only the 60 increment gives 360, which wrongly treats growth as an additive amount rather than a ratio.
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