The following data is taken from the records of a non- life insurance company.
|
Annual Rate of claim amount inflation
|
Expected future rate of Claim amount inflation
|
|
Year
|
Rate
|
Year
|
Rate
|
|
1997/98
|
5 %
|
2001/02
|
6 %
|
|
1998/99
|
7 %
|
2002/03
|
6 %
|
|
1999/00
|
6 %
|
2003/04
|
5 %
|
|
2000/01
|
9 %
|
2004/05
|
5 %
|
Reserves held in deposit on or after 31/12/2001 are expected to earn interest @ 8 % per annum
|
Benchmark Year
|
1997
|
1998
|
1999
|
2000
|
2001
|
|
Earned Premium(in Thousands of rupees)
|
67950
|
74813
|
70715
|
76822
|
64903
|
|
Ultimate Loss Ratio
|
90%
|
90%
|
90%
|
90%
|
90%
|
Claim amounts paid in the year of accident and incremental amounts paid in subsequent years are as follows : (Amounts are in thousands of rupees)
|
|
|
YEAR OF PAYMENT
|
|
|
|
Accident Year
|
1997
|
1997
|
1998
|
1999
|
2000
|
2001
|
|
1998
|
28791
|
22063
|
2805
|
378
|
78
|
|
1999
|
|
27620
|
2310
|
17725
|
8256
|
|
2000
|
|
|
26935
|
11925
|
9872
|
|
2001
|
|
|
|
36661
|
9222
|
|
|
|
|
|
|
18619
|
Assuming that 1997 claims would have "run-off" fully by the end of 2001, estimate the reserves needed in respect of claims outstanding as at that time.
(i) Use basic chain-ladder method , without taking into account the given data regarding inflation and interest earnings.
What is the underlying assumption regarding inflation.
(ii) Use inflation-adjusted chain ladder method , taking into account the inflation both past and future and interest earned on deposits from 31/12/2001 onwards
(iii) Use Bornhuetter-Ferguson method ignoring the data in respect of inflation and the interest earned by reserves.
Indicate the similarity between Bornhuetter-Ferguson method and Bayesian approach for estimation.