Schedule P - Priors
I am having a hard time conceptually grasping what the prior columns mean in Schedule P form the example. I tried reading the source material as well and am still stuck. Can you explain what the priors mean conceptually for parts 2, 3, and 4? For example for part 3, would the prior AYs at 2013 mean the amount paid in 2013 for all accident years prior to 2013?
Comments
"Prior AYs" rows of these Schedule P parts contain data from the last diagonals of some hypothetical triangles composed of the prior AYs, each of which are evaluated as of end of the year of each column.
The easiest to conceptualize is Part 4 (Case+IBNR). Assuming 2013 is the starting column-year, for the 2013 column, Prior AYs row gives the sum of reserves as of 12/31/2013 for all AYs prior to 2013.
Part 3 is Paid, where Prior AYs row gives sum of the paid during the calendar year following the preceding column's yearend for all prior AYs. Here, 2013 is stated as zero: the schedule starts recording the Paids starting with the earliest recorded reserves, which was for 12/31/2013 in Part 4.
Part 4 is Incurred, where Prior AYs row is the same row for Part 3 + (Part 4.1 - Part 4.0), where ".1" and ".0" are for two consecutive columns.
The explanation of the prior years row in the source text is not clear to me. In particular "...this continues all the way until 2018, where the amount of $30,210 represents net amounts paid since year-end 2002 (through year-end 2018) on net loss and DCC reserves as of December 31, 2009, for all prior accident years."
I don't understand the significance of paid losses since 2002 on reserves as of December 31, 2009. If the reserves are as of year-end 2009 how could there be paid losses prior to that back to 2002?
It's a typo. "2002" should be "2009."
still have trouble to understand "2013 is stated as zero": Why top left corner will be zero on part 3. please explain.
It is a convention that Sch P uses. A reasonable rationale for it is that Part 4's top left corner gives the reserves on prior AYs as of end of that cell's column-year. Sch P chooses to keep track of paids on prior AYs starting with the yearend of the aforementioned cell, so it chooses not to report paids of the calendar year of that cell.
I spotted an omission of mine in my previous comment above. Each consecutive cell of Part 3 Prior row adds an extra CY's worth of paids to the previous cell, so it's cumulative.