[[Actuarial Notes Wiki|Wiki]] / [[Exam 5 (CAS)]] / **Case Outstanding Development Method** ## Definition ==Case Outstanding Development Method== is a reserving technique that separately develops paid losses and case outstanding reserves using different development patterns, recognizing that case reserves may have different emergence patterns than paid losses. ## Methodology ### Step 1: Create Separate Triangles ``` Paid Loss Triangle: Shows only actual payments by age Case Outstanding Triangle: Shows case reserves by age ``` ### Step 2: Develop Each Component ``` Paid Ultimate = Paid × Paid LDF Case Ultimate = Case × Case Development Factor Total Ultimate = Paid Ultimate + Case Ultimate ``` ### Step 3: Calculate IBNR ``` IBNR = Total Ultimate - (Paid + Case Outstanding) ``` ## Formula ``` Ultimate = Paid + (Case Outstanding × Case Development Factor) Where Case Development Factor represents: - Changes in case adequacy - Settlement patterns - Additional payments beyond current cases ``` ## When to Use **Preferred when:** - Case reserve practices have changed - Settlement patterns shifting - Want to isolate case adequacy issues - Paid and case have different development **Example situations:** - New claims system implemented - Case reserve philosophy changed - Settlement rates accelerating/decelerating - Unusual case reserve levels ## Example ``` AY 2023 @ 24 months: Paid: $800,000 Case Outstanding: $500,000 Incurred: $1,300,000 Traditional Method: 24-Ult incurred LDF: 1.350 Ultimate: $1,300,000 × 1.350 = $1,755,000 Case Development Method: Paid 24-Ult LDF: 1.500 Case 24-Ult Factor: 1.200 Ultimate = $800,000 × 1.500 + $500,000 × 1.200 = $1,200,000 + $600,000 = $1,800,000 Difference: $45,000 (2.6%) ``` ## Advantages - Recognizes different development patterns - Can identify case reserve inadequacy - More responsive to operational changes - Better when case practices unstable ## Disadvantages - More complex than incurred methods - Requires both paid and case data - Selection of case factors can be subjective - May not have sufficient case data ## Related Concepts - [[Chain Ladder Method#Definition]] - [[Case Reserves#Definition]] - [[Development Factor#Definition]] ## References - Friedland, Chapter 6