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

604 ESTIMATING THE WORKERS COMPENSATION TAILof incremental payments per open claim. In contrast, future incrementalMPD payments have almost no causal link to paymentsfor rapidly settled claims during early DYs.Table 3.1 provides a specific example of how this method isapplied. The specific steps to be taken in applying the incrementalpaid to prior open claim method are as follows:1. Incremental paid losses (A) and open counts (B) arecompiled by AY and DY.2. Historical averages of incremental paid to prior openclaim (C) are computed as to (A) divided by claim (B).3. Each historical average is trended to the expected severitylevel for the first calendar year (CY) (2003) after theevaluation date (12/31/2002), and a representative averageis selected for each DY [last row of (D)]. A trendfactor of 9% per year was assumed in this example.4. Ratios of open counts at successive year-ends are computed(E).5. The selected ratios from (E) by DY are used to projectthe number of open claims for each future DY of eachAY, thereby completing (B).6. Future values of incremental paid to prior open claim (C)are projected on the basis of the representative averagesin the last row of (D).7. Projections of incremental paid losses for future DYsfor each AY (A) are determined as the product of theprojected open counts from the lower right portion of(B) and the projected values of incremental paid to prioropen claim from (C).The descriptions in the lower right portion of sections (A),(B) and (C) of Table 3.1 also detail how the estimates in eachportion are derived.