CAS Exam 5 Fall 2013, Question 15
Study guide: Exam 5
Given the following information:
Company A — Paid Losses ($000s)
| AY | 12 | 24 | 36 | 48 |
|---|---|---|---|---|
| 2009 | $400 | $2,400 | $9,600 | $12,000 |
| 2010 | $400 | $2,400 | $9,600 | |
| 2011 | $400 | $2,400 | ||
| 2012 | $400 |
Company A — Reported Losses ($000s)
| AY | 12 | 24 | 36 | 48 |
|---|---|---|---|---|
| 2009 | $800 | $4,800 | $12,800 | $14,400 |
| 2010 | $800 | $4,800 | $12,800 | |
| 2011 | $800 | $4,800 | ||
| 2012 | $800 |
Company A — Reported Counts
| AY | 12 | 24 | 36 | 48 |
|---|---|---|---|---|
| 2009 | 2,000 | 3,000 | 3,000 | 3,000 |
| 2010 | 2,000 | 3,000 | 3,000 | |
| 2011 | 2,000 | 3,000 | ||
| 2012 | 2,000 |
Company A — Closed Counts
| AY | 12 | 24 | 36 | 48 |
|---|---|---|---|---|
| 2009 | 1,000 | 1,500 | 2,000 | 2,500 |
| 2010 | 1,000 | 1,500 | 2,000 | |
| 2011 | 1,000 | 1,500 | ||
| 2012 | 1,000 |
Company B — Paid Losses ($000s)
| AY | 12 | 24 | 36 | 48 |
|---|---|---|---|---|
| 2009 | $12 | $45 | $176 | $230 |
| 2010 | $4 | $39 | $192 | |
| 2011 | $6 | $51 | ||
| 2012 | $8 |
Company B — Reported Losses ($000s)
| AY | 12 | 24 | 36 | 48 |
|---|---|---|---|---|
| 2009 | $50 | $144 | $264 | $278 |
| 2010 | $34 | $144 | $288 | |
| 2011 | $34 | $147 | ||
| 2012 | $40 |
Company B — Reported Counts
| AY | 12 | 24 | 36 | 48 |
|---|---|---|---|---|
| 2009 | 40 | 60 | 60 | 60 |
| 2010 | 40 | 60 | 60 | |
| 2011 | 40 | 60 | ||
| 2012 | 40 |
Company B — Closed Counts
| AY | 12 | 24 | 36 | 48 |
|---|---|---|---|---|
| 2009 | 20 | 30 | 40 | 50 |
| 2010 | 20 | 30 | 40 | |
| 2011 | 20 | 30 | ||
| 2012 | 20 |
- Both Company A and Company B write primary auto liability policies.
- On December 31, 2012, the two merge to form Company C.
Part a (1 point)
According to the Statement of Principles Regarding Property and Casualty Loss and Loss Adjustment Expense Reserves, discuss two actuarial considerations for designing a reserve study for Company C.
Part b (1.5 points)
Calculate three key diagnostics that an actuary would review to determine whether to combine historical data for Company A and Company B.
Part c (1 point)
Assume the mix of business is comparable (i.e., similar limits, classes, territories, etc.) for Company A and Company B. Argue whether or not it is appropriate to combine the historical data to estimate unpaid claims for accident years 2012 and prior as of December 31, 2012 for Company C.
Part d (1 point)
Assume that Company C's claims department will adopt Company A's claims practices. Argue whether or not it is appropriate to combine historical data to estimate unpaid claims for accident year 2013 as of December 31, 2013 for Company C.
Answer this question and see the worked solution