CAS Exam 5 Spring 2013, Question 20
Study guide: Exam 5
Given the following information for a line of business:
- Assume no reported claims development past 36 months.
- Annual claim severity trend = +5%.
- Paid claim development method ultimate loss estimate for accident year 2012 = $10,275,000.
- Reported claim development method ultimate loss estimate for accident year 2012 = $9,650,000.
Cumulative Paid Claims ($000s)
| Accident Year | 12 Months | 24 Months | 36 Months |
|---|---|---|---|
| 2010 | $2,100 | $6,410 | $8,300 |
| 2011 | $2,210 | $7,000 | |
| 2012 | $2,550 |
Cumulative Closed Claim Count
| Accident Year | 12 Months | 24 Months | 36 Months |
|---|---|---|---|
| 2010 | 35 | 75 | 99 |
| 2011 | 35 | 80 | |
| 2012 | 40 |
Cumulative Reported Claims ($000s)
| Accident Year | 12 Months | 24 Months | 36 Months |
|---|---|---|---|
| 2010 | $5,300 | $7,810 | $8,500 |
| 2011 | $5,500 | $8,130 | |
| 2012 | $6,000 |
Cumulative Reported Claim Count
| Accident Year | 12 Months | 24 Months | 36 Months |
|---|---|---|---|
| 2010 | 80 | 98 | 100 |
| 2011 | 79 | 97 | |
| 2012 | 82 |
Outstanding Claims ($000s)
| Accident Year | 12 Months | 24 Months | 36 Months |
|---|---|---|---|
| 2010 | $3,200 | $1,400 | $200 |
| 2011 | $3,290 | $1,130 | |
| 2012 | $3,450 |
Outstanding Claim Count
| Accident Year | 12 Months | 24 Months | 36 Months |
|---|---|---|---|
| 2010 | 45 | 23 | 1 |
| 2011 | 44 | 17 | |
| 2012 | 42 |
Fully discuss the considerations in deciding between using the paid or the reported claim development method to estimate ultimate claims for this line of business, and recommend an ultimate loss estimate for accident year 2012.
Part a (3 points)
Answer this question and see the worked solution