Reserve Development Steps-Meth1 w example.pdf

AQUARIUS CAPITAL AQUARIUS CAPITAL 110 Betsy Brown Road · Port Chester, NY 10573 Tel: 914-933-0063 · Fax: 914-933-0064 COMPLETION FACTOR AND RESERVE DEVELOPMENT STEPS METHOD 1 – AGE-to-AGE DEVELOPMENT Below is a list of steps for developing completion factors and calculating reserve estimates from a claim lag triangle. These steps accompany the attached illustrative example at the end in pages 1-11: 1. Assemble the Claim Lag Triangle: a. Paid claim month-year down the far left column b. Incurred month-year (date-of-service) across the top row c. Insert totals at the far right column. This represents “Paid” claims d. Insert totals at the bottom row. This represents “Incurred Paid” claims e. Ideally thirty-six (36) months of data with no less than twenty-four (24) months forming the claim triangle. f. In this triangle example, claims reflect incurred dates from 1/1/09 through 12/31/11 and paid dates from 1/1/09 through 12/31/11. 2. Cumulative Claims by Incurred and Paid Date: a. Accumulate claims by incurred date for each paid date. b. For example, claims incurred in Jan-09 and paid through Mar-09 is the summation of claims incurred in Jan-09 paid in Jan-09 plus paid in Feb-09 plus paid in Mar-09, etc. 3. Cumulative Claims by Incurred Date and Duration: a. Keep incurred date in the top row b. Replace paid date in far left column with duration starting at 0 and counting down through 35 (assuming 36 months of data). The duration reflects the number of months from the incurred date through the last date in which claims have been paid from a data set. In this example, claims are paid through 12/31/11 (see step 1f. above), therefore, for the Jan-09 incurral month there are 36 months of payments (Jan-09 through Dec-11, durations 0 through 35). For the Dec-11 incurral month, there is only 1 month of payment (Dec-11, duration 0). c. Shift the cumulative claim triangle de