PROCEEDINGS May 15, 16, 17, 18, 2005 - Casualty Actuarial Society

WHEN CAN ACCIDENT YEARS BE REGARDED AS DEVELOPMENT YEARS? 243FIGURE 4Calculation of Cumulative and IncrementalForecasts in Terms of Incrementals (labels representthe sums of the incrementals in their region)In the usual form of the chain ladder, you compute forecastsĉ ij = r j £ c i,j¡1 (where c i,j¡1 is again replaced by its forecastwhen it is unavailable). That is, compute the forecastsĉ ij = A ij =A i,j¡1 £ c i,j¡1 . Predicted incremental paid loss amountsmay be formed by taking first differences of predicted cumulativepaid amounts. Computation of incremental paid loss forecastsis essential for incorporating future inflation and discounting,(where relevant) and for computation of annual claim cashflows.Now let b ij = A ij ¡ A i,j¡1 , which is the sum of the incrementalsabove p ij . For simplicity, in Figure 4 this is just called B.Similarly, let C = c i,j¡1 ,andletA = A i,j¡1 .