Now we're going to take a look in detail about how the claims expense is paid out over time, and we're going to develop something called a payoff diagram. We'll do one historically and then we'll do a forecast payout diagram. In this case, we've got a snapshot of a model and we're gonna start by looking at the experience of how a yearly claims expense is paid out over time. So in this case, what we've got from the accounts, is we are seeing that this is the total cumulative payout. So in the first year, they paid out 3650 of that claims expense, and then the cumulative payout two years is 5286.

3 years, the accumulative payout was 5885. And remember, this is just one year's worth of claims expense that we're talking about. And you can see we're going all the way down for another nine years. So in this case, this is effectively a 10 year payout in total. This means, this is the column here, the next column, column C, is the incremental payout. So the vast bulk of the payout happens in the first year. In fact, that's 53.9%, 54%, and then you can see the next year it's 24.2% and then it slowly declines. So by year 10, nine years after the accident year, you've got only 0.4 being paid out. But remember, this is just one year's worth of claims expense. So if you're building a model, you need to think about all the prior years' claims expense and how much is remaining to be paid out. So for example, if you take the historical year, the claims expense was 6997. Now, because it's a historical year, that 53.9 has already been paid out, because that happened in the historical year. So we're just dealing with the amount from year two onwards all the way to year 10. So for the first amount, that 690.6, we'll take the 24.2 and multiply it by the claims expense in that historical year. And then in the next year, that 619 is the 8.8% multiplied by the claims expense on the left there, et cetera. So what we're doing is for the historical year, we only have nine years worth of payments. So that's why it stops in year nine there. Now, for the historical year minus two, so that's not the historical year, it's the year before that, you've only got eight years worth of payout and et cetera. But you still need to keep on going back, because even something that was expensed, in this case nine years ago, even though you expensed it nine years ago, you will still be paying it out. So that is a historical payoff diagram that you would have to do if you're modeling a business going forward.