# - TIA EXAM 5 - FRIEDLAND CH 16

 What is DCC? Defense and cost containmentIncludes all defense litigation and medical cost containment expenses What is A&O? Adjusting and otherIncludes all claim adjusting expenses What are the key factors on whether development methods can be used for adjustment expenses? If sufficient detail is available such that data can be organized by AY (or PY, UW Y,or RY)If the expenses tend to track accident (PY, UY,RY) or are more dependent on CY Describe the Multiplicative approach for the Ratio of paid ALAE-to-paid clm dvmt Project ultimate claims (using appropriate technique - text uses paid & rpt dev)Develop ratio of paid ALAE-to-paid claims to ultimateUltimate ALAE = Ultimate Claims * Ultimate Ratio of paid ALAE-to-paid claims What is the assumption with the multiplicative approach for ALAE? Relationship btwn ALAE & Clms is relatively stable over experience period List 3 Adv and 2 Disadv of Multiplicative ALAE approach Advantages1. Recognizes the relationship between ALAE and claims2. Ratio development factors tend not to be as highly leveraged3. Easy to interject actuarial judgment in projection analysis Disadvantages 1. Any error in estimate of ultimate claims could aff ect estimate of ultimate ALAE2. For some lines, large amounts of ALAE may be spent on CNP Important to review large claims and maybe project estimates separately Describe the Additive approach for the Ratio of paid ALAE-to-paid clm dvmt 1. Project ultimate claims (using appropriate technique - text usespaid and rpt dev)2. Develop ratio of paid ALAE-to-paid claims to ultimate**Take diff erences between ratios at successive ages and select **Age-to-ultimate factor is then the cumulative sum from age to ultimate3. Ultimate ALAE = Ultimate Claims * Ultimate Ratio of paid ALAE-to-paid claims What is an advantage of additive ALAE approach? More stable approach when ratios are very small at early maturities AuthorCDP ID76679 Card Set- TIA EXAM 5 - FRIEDLAND CH 16 DescriptionFRIEDLAND CH 16 Updated2011-04-02T00:48:32Z Show Answers