What method assumes that an entity’s historical experience relating to the timeliness of settlement will be predictive of future results?

The paid loss projection method, often implemented as the chain-ladder method on paid loss data, directly models an entity's historical payment patterns. It calculates development factors based on the cumulative amount of losses paid at successive time intervals. This process inherently relies on the assumption that the historical speed and pattern of claim payments—the "timeliness of settlement"—will be a reliable predictor for how current, unpaid claims will be settled and paid in the future.

B. Unpaid loss projection is the result of a calculation (e.g., projected ultimate incurred loss minus paid-to-date loss), not a primary projection method itself.

C. Incurred loss projection uses both paid losses and case reserves. It reflects changes in reserve adequacy in addition to payment timeliness, making it less direct.

D. Loss ratio projection estimates losses based on earned premium and an expected loss ratio, bypassing the use of historical loss development or settlement patterns.

1. Friedland

J. (2010). Estimating Unpaid Claims Using Basic Techniques. Casualty Actuarial Society. In Chapter 3

Section 3.3

"The Paid Development Method

" it is stated: "The paid development method assumes that claims will be paid in the future in the same manner as they have been paid in the past... The key assumption is that the historical paid loss development patterns are predictive of the future paid loss development patterns." (p. 31).

2. Werner

G.

& Modlin

C. (2016). Basic Ratemaking

Fifth Edition. Casualty Actuarial Society. Chapter 5

"Loss Reserving

" discusses the assumptions of the development method. It explains that the paid loss development method's primary assumption is the stability of the rate at which claims are paid. (pp. 169-171).

3. University of Wisconsin-Madison

School of Business. (n.d.). Actuarial Science 654: Loss Models II

Lecture 15: Loss Reserving. The course notes explain that the paid chain-ladder method's key assumption is that the pattern of payments in the past is representative of how payments will emerge in the future.