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

ESTIMATING THE WORKERS COMPENSATION TAIL 637² While 90% of such claimants die before they reach the ageof 90, medical payments to claimants who live beyond 89years of age account for over 30% of total expected medicallosses.The ratio of the estimated case reserve based on the secondmethod to that from the first method varies dramatically with theage of the claimant at the reserve date. It is also dependent ongender. This is also true, though to a lesser degree, for the ratioof the third method case reserve to the second method reserve.These ratios are displayed in Table 8.2.There are a number of reasons to believe that the reserveestimates produced by the static mortality model presented inSection 3 are analogous to estimates produced by the secondmethod. If that is true, then it would be necessary to multiplyreserve estimates based on the static mortality model by someweighted average of the ratios in Column (E) of Table 8.2 toarrive at an estimated reserve at the expected level. Whether thatratio is 1.25 or 1.40 or 1.55, it represents a substantial add-onto a reserve estimate that is likely higher than what would beobtained using more traditional methods.Why are reserve estimates based on the static mortality modelsimilar to those produced by the second method? A fundamentalassumption of the model is that all claimants die according to aschedule dictated by current mortality tables. When an expectedvalue of the reserve is calculated, it is based on a weighted averageof a full range of scenarios, including those where manyclaimants die earlier than planned and others die later. Total futurepayments for those claimants that die later will be givenmore dollar weight. Hence, the expected value of the reservewill be correspondingly greater than that projected by the staticmortality model.All of the methods presented in this section are based on thecommon assumption that the current level incremental severities