FINAL Summit Medical Group RFP

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VI. CONTINUED .... "CLAIM RESERVE VALUATION -- METHODOLOGIES 1-6"
NOTES:
(1) 12 Month Harmonic Average Completion Factors were used in this example.
(2) Pd on Inc at lag(t) is divided by the CF(t) to develop ultimate Paid on Incurred claims.
(3) Col 2 divided by member months.
(4) 12 month avg PMPM Claims starting 3 months prior to claim cut-off w/claims Centered in midpoint. We then trend up and down lag table by 7%.
(5) CREDIBILITY FACTORS
CF(t) CREDFACTOR
0 0
0.25 0.1
0.5 0.25
0.55 0.45
0.6 0.6
0.65 0.7
0.7 0.8
0.75 0.9
0.8 1
(6) Adj Ult Inc Clms/pmpm = Cred Fact * Ult Inc Clms + (1-Cred Fact)*Avg Ult Inc Clms
(7) Adj Ult Inc Clms = Adj Ult Inc Clms/PMPM (Col 6) * # of Members
(8) Reserve = Adj Ult Inc Clms (Col 7) - Paid On Inc Claims
(9) Runoff = This is the actual run off paid claims for each month.
(10) Est Res + Runoff = This produces the best estimate of ultimate incurred claims. No adj made for Reins. Recoverables.
VII. ALTERNATIVE RESERVE METHODS - METHODOLOGIES 7 - 10.
METHOD: AVERAGEPAIDor INCURREDCLAIMSMULTIPLIEDBYAVERAGENUMBEROFMONTHSUNPAID
Using a Using a
"12MosHarm" "6MosHarm" "3MosHarm"
AVG. AVG. # Unadjusted ADJ.FOR AVG.# AVG.#
MONTHLY x OFMOS. Reserve REINSUR. = EST. OFMOS. OFMOS.
COST UNPAID RECOVER. RESERVE UNPAID UNPAID
7. USINGMOSTCURRENT12MOS.PAID: 1,742,655 1.4925 $2,600,937 1.00 2,600,937 $2,839,257 $2,727,883
8. USINGMOSTCURRENT6MOS.PAID: 1,824,610 1.4925 $2,723,255 1.00 2,723,255 $2,972,783 $2,856,171
9. USING INCURREDCLAIMS 3 1,782,430 1.4925 $2,660,302 1.00 2,660,302 $2,904,062 $2,790,145
MONTHSPRIORTOCLAIMSCUTOFF:
10. USING INCURREDCLAIMS3 1,783,603 1.4925 $2,662,052 1.00 2,662,052 $2,905,972 $2,791,981
MONTHSPRIORTOCLAIMSCUTOFF:
1.6293 1.5654
UnadjustedReserve