IAI Actuarial Core Principles · Economic Modelling · Run-off triangles
In an average cost per claim projection using incremental data, the average cost per claim in development year 1 is 20% higher than in development year 0 for every accident year, and the development year 0 average for 2023 is Rs 5,000. Ignoring inflation, the projected average cost per claim for accident year 2023 in development year 1 is:
The projected average is Rs 6,000. The development year 0 average of Rs 5,000 is multiplied by 1.20 to reflect the 20% higher average cost in development year 1, with no inflation adjustment required.
- ARs 4,000
- BRs 5,200
- CRs 5,500
- DRs 6,000Correct
- Rs 6,250
Explanation
Apply the 20% increase: 5,000 x 1.20 = Rs 6,000. Rs 6,250 arises from dividing by 0.8 mistakenly, and Rs 5,200 from adding 200 rather than 20%.
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