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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 5%.
(5) CREDIBILITY FACTORS
CF(t)
CRED FACTOR
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: AVERAGEPAID or 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.
USING MOST CURRENT 12 MOS. PAID:
89,842
0.5350
$48,068
1.00
48,068
$50,405 $49,410
8.
USING MOST CURRENT 6 MOS. PAID:
88,642
0.5350
$47,426
1.00
47,426
$49,732 $48,749
9.
USING 12 MOS. OF INCURRED CLAIMS 3
89,176
0.5350
$47,712
1.00
47,712
$50,032 $49,043
MONTHS PRIOR TO CLAIMS CUTOFF:
10.
USING 6 MOS. OF INCURRED CLAIMS 3
89,582
0.5350
$47,929
1.00
47,929
$50,260 $49,267
MONTHS PRIOR TO CLAIMS CUTOFF:
0.5610
0.5500
UnadjustedReserve