Pricing in General Insurance

148 Pricing in General Insurance

‘(year on year) development factor’ as it allows to develop the total claim amount

from one year to the next.

This can be applied iteratively to all development years, possibly adding a tail fac-

tor to account for further development beyond 9 years of development. In the case

of Figure 11.10, we have assumed a tail factor of 1.005. This allows us to produce the

so-called ‘factors to ultimate’, that is, cumulative development factors that allow us

to project each year to its ultimate expected value. For example, the factor to ultimate

for DY = 0 is

F2U(0) = 2.787 × 1.407 ×…× 1.005 = 6.942

The ultimate loss amount ...