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IAI Actuarial Core Principles · Economic Modelling · Run-off triangles

In the average cost per claim method applied to a run-off triangle of incurred or paid claims, which pair of triangles is needed to project the ultimate claim cost for each accident year?

The method needs a triangle of claim amounts and a triangle of claim numbers. Average cost per claim is obtained by dividing amounts by numbers, projected forward, and then multiplied by projected claim numbers to give ultimate cost for each accident year.

  1. AA triangle of cumulative paid claims and a triangle of premiums earned
  2. BA triangle of cumulative claim amounts and a triangle of cumulative number of claims (or claim numbers)Correct
  3. CA triangle of incremental claim amounts and a triangle of reinsurance recoveries
  4. DA triangle of claim amounts and a triangle of investment yields
  5. A triangle of claim amounts and a triangle of expense loadings

Explanation

The method splits the problem into frequency and severity. It needs claim amounts (usually incremental) and the number of claims, so that an average cost per claim can be projected and multiplied by the projected number of claims. Premium, reinsurance, yield or expense triangles are not required.

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