CAS Exam 5 Spring 2013, Question 22
Study guide: Exam 5
An actuary is assisting a manufacturing company in reserving its self-insured workers compensation program as of December 31, 2012. The program began on January 1, 1998 and has undergone the following changes in recent years:
- On January 1, 2007, the per-occurrence retention was increased from $300,000 to $750,000.
- On January 1, 2010, the company automated some of its production process. As a result, the company replaced a significant portion of its assembly-line staff with sales staff.
The actuary would like to use the following methods and data to estimate ultimate claims as of December 31, 2012:
- Development method using company-specific claim development triangles.
- Expected claims method using payroll as exposure base and the average of the reported and paid claim development projections as initial estimates of ultimate claims.
- Frequency-severity method using company-specific claim count development triangles.
Part a (1 point)
Discuss necessary adjustments the actuary should make to the company-specific data to use the development method.
Part b (1 point)
Briefly describe four adjustments the actuary should consider making to historical claims and exposures to put them on current levels in the expected claims method.
Part c (1 point)
Describe two diagnostic tests the actuary should perform before using the frequency-severity method.
Answer this question and see the worked solution
Concepts tested
- Loss Reserving
- Frequency-Severity Method
- Self-Insured Retention
- Changing Conditions
- Data Diagnostic Analysis
- Expected Loss Method