compressed_Annual Report 2016-ilovepdf-compressed

eserves are held, be consistent with the discount
rate that is selected.
Historical inflation (CPI index) figures supplied by
the Fund to inflate past claims to present day values
were used. The inflation rate over the inter-valuation
period was 7.8% year-on-year for end of
March 2016.
Future inflation was allowed for at a rate of 7% p.a.
In the previous valuation, 6% was used. The real
discount rate (i.e. excess of the discount rate over
inflation) is now 2% p.a. and is the same as in the
previous valuation.
Discount rate
The discounted liability represents the net present
value of all future payments, calculated at a specific
discount rate.
The discount rate was set at 9% p.a. and the real
discount rate has been set at a rate of 2% p.a. In
the previous valuation, 8% was used.
(a)
(b)
known as Incurred But Not Reported claims (IBNR
claims).
A brief description of this methodology is discussed
below.
Payments Per Claim Incurred (PPCI)
The PPCI method models the claims process by
assuming that the payments will develop in a
predictable pattern over time. The method requires
assumptions regarding:
The ultimate number of claims incurred for each
accident year
The average claim size
The distribution of payments over time
Future claims inflation rate(s)
Bornhuetter-Ferguson projection
of claim numbers
As noted above, the PPCI method requires a projection
of the number of claims that will ultimately be
reported for each year’s accidents. The Bornhuetter-Ferguson
(BHF) method has been used to do this
projection.
Discounting cash flows at a higher discount rate
reduces the present value of the liability. The important
assumption in the escalation and discounting
process is the real discount rate. The real discount
rate used for the current valuation is 2%.
Methodology
The outstanding claims liability represents the value of
the Fund’s obligations, under the terms of the existing
legislation to compensate people injured as a result
of motor vehicle accidents (or their dependants in the
case of fatalities).
Projection of future claims notification
The ultimate claim numbers have been projected
using a Bornhuetter-Ferguson projection method.
The projection builds on the number of claims that
have already been notified to the Fund, to estimate
the number of claims that will be notified in future
in respect of accidents that already have occurred
up until the valuation date. These claims are also
The BHF method uses an independent measure to determine
the likely ultimate number of claims for each
accident year. The independent measure used for the
analysis was sales of petrol and diesel.
I Basic Chain Ladder (BCL) or Link-ratio method
Link ratios are calculated between the development
years of each of the accident years in the triangle
and are combined as weighted average development
factors for each development year. Such a set
of development factors are called Basic Chain-ladder
development factors.
The derived development factors are used to project
the claims expected to emerge in the future development
periods.
Once the claims have been projected and the ultimate
level of claims established, the difference between
the ultimate projected claims and claims paid
to date represents the amount of claims reserve required
(i.e. OCR + IBNR + IBNER).
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