CAS Exam 5 Fall 2014, Question 17
Study guide: Exam 5
A monoline insurance company writes business in one state. The state has experienced significant increases in insurance costs. In an effort to reduce costs, the state's government passes legislative reforms effective January 1, 2013, which impacts all outstanding and future reported insurance claims.
The legislative reforms were expected to have the following impacts:
- Reduce the amount of time claims remained open.
- Reduce the average annual inflation by half of what it was prior to the reforms.
The following information is available for the insurance company as of December 31, 2013:
Cumulative Paid Claims as of (months)
| Accident Year | 12 | 24 | 36 | 48 |
|---|---|---|---|---|
| 2010 | $1,000,000 | $1,750,000 | $2,350,000 | $2,850,000 |
| 2011 | $1,210,000 | $2,117,500 | $3,059,100 | |
| 2012 | $1,089,000 | $2,042,370 | ||
| 2013 | $1,709,000 |
Cumulative Closed Claim Counts as of (months)
| Accident Year | 12 | 24 | 36 | 48 |
|---|---|---|---|---|
| 2010 | 100 | 150 | 180 | 200 |
| 2011 | 110 | 165 | 209 | |
| 2012 | 90 | 144 | ||
| 2013 | 132 |
Incremental Closed Claim Counts as of (months)
| Accident Year | 12 | 24 | 36 | 48 |
|---|---|---|---|---|
| 2010 | 100 | 50 | 30 | 20 |
| 2011 | 110 | 55 | 44 | |
| 2012 | 90 | 54 | ||
| 2013 | 132 |
| Accident Year | Ultimate Claim Counts |
|---|---|
| 2010 | 200 |
| 2011 | 220 |
| 2012 | 180 |
| 2013 | 220 |
Part a (2.5 points)
Assuming the closure rates and inflation observed during calendar year 2013 continue, use a frequency-severity approach to estimate unpaid claims for accident year 2013.
Part b (1 point)
Discuss whether or not each of the legislative reform impacts has occurred.
Answer this question and see the worked solution