RE: Kittel

Paul Wilbert ( Paul.Wilbert@pfcenter.com )
Fri, 7 Aug 1998 16:59:41 -0700

I believe that first formula should be (1/2 x Ratio x CASE RESERVES) +
(Ratio * IBNR Reserves) - not the total incurred losses. Incurred
losses is a calendar year measure, not a liability amount at a specific
point in time. Then since total reserves is equal to case + IBNR, the
second formula is just algebra. Since total reserves include IBNR, you
are "double counting" it to get the "full amount" instead of the "half."

Paul Wilbert
PEMCO Insurance Companies

>----------
>From: Scott Lennox[SMTP:sclen@lonet.ca]
>Sent: Friday, August 07, 1998 19:10
>To: studygroup7@lists.casact.org
>Subject: Kittel
>
>My question has to do with the formula for ULAE reserves.
>
>The Kittel study note (page 319) outlines the ULAE reserve as
>(1/2 x Ratio x Incurred Loss) + (Ratio x IBNR Reserve).
> =3D> where the ratio is determined either by the traditional method =
or
>by Kittel's method.
>
>However, both question #58 from fall 1994 and question #63 from fall
>1996 use the formula:
>=BD x Ratio x (Total Reserves + IBNR).
>
>I don't get the same answer with both formulas. Does anyone know what
>the difference is, and where that second formula came from?
>
>
>Scott Lennox.
>