RE: Kittel

Budde, Paul ( (no email) )
Mon, 10 Aug 1998 08:33:23 -0500

The first formula should be 0.5*Ratio*(Case reserves) + ratio*IBNR
reserves. We don't use incurred loss because this would include claims
which have been paid and closed (and for which all ULAE should be =
paid).

We are assuming that half the ULAE is paid when the claim is opened, so
for open claims (i.e., case reserves), we only need 50% of the ratio,
while for IBNR claims we need 100% of the ratio. Note that this is =
what
the second formula does, since

Total reserves + IBNR =3D case reserves + IBNR + IBNR.

Paul Budde

-----Original Message-----
From: Scott Lennox [mailto:sclen@lonet.ca]
Sent: Friday, August 07, 1998 9:10 PM
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.