Appreciate the video. I have a question…inorder to apply loss development factor to incurred losses to calculate expected ultimate by incurred losses does incurred losses have to be cumulative?
@@ArcherActuarialConsulting I have a follow-up question. If incurred losses are not increasing but decreasing from one development year to another that would mean that the incurred losses are not cumulative. Therefore one would have to calculate the cumulative incurred losses before calculating the incurred loss development factors? Is that a correct statement to make? Thank you!
If many or all of your incurred losses are decreasing over time, this is a good sign that you are looking at incremental incurred loss. If the losses are incremental, you must first cumulate them as you suggested. Then you can select LDFs from the resulting cumulative incurred loss development triangle. The key here is to be sure you know the characteristics of the underlying data and avoid making assumptions. It is possible, though relatively rare, for incurred losses to increase over consecutive development periods. A decrease in incurred loss does not guarantee that the incurred losses are incremental.
Helped me in understanding loss incurred. Thanks !
Appreciate the video. I have a question…inorder to apply loss development factor to incurred losses to calculate expected ultimate by incurred losses does incurred losses have to be cumulative?
Hello. Yes, incurred loss development factors are generally designed to be applied to cumulative incurred losses.
@@ArcherActuarialConsulting I have a follow-up question. If incurred losses are not increasing but decreasing from one development year to another that would mean that the incurred losses are not cumulative. Therefore one would have to calculate the cumulative incurred losses before calculating the incurred loss development factors? Is that a correct statement to make? Thank you!
If many or all of your incurred losses are decreasing over time, this is a good sign that you are looking at incremental incurred loss. If the losses are incremental, you must first cumulate them as you suggested. Then you can select LDFs from the resulting cumulative incurred loss development triangle.
The key here is to be sure you know the characteristics of the underlying data and avoid making assumptions. It is possible, though relatively rare, for incurred losses to increase over consecutive development periods. A decrease in incurred loss does not guarantee that the incurred losses are incremental.
@@ArcherActuarialConsulting thank you!