Average case outstanding severity triangle interpretation.

downthesundownthesun
in Odomirok.15-P

Hi. I have what's probably a rather basic question:

If I have an average case outstanding severity triangle that is showing an increasing trend, is that an indication of over- or under-reserving, and why?

Thanks.

Comments

  • Staff - ACStaff - AC

    Increasing trends in an average case os triangle ("severity" is redundant) are associated with reserve strengthening, i.e. putting up more case reserve per case. Whether this leads to bringing reserves up to the correct level or to over-reserving depends on the specifics of the business. However, from the actuarial reserving standpoint, when using chain-ladder reserving, loss development factors need to be adjusted to compensate for this inconsistency in the triangle. Failure to do so will lead to over-reserving.

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