CAS Exam 5 Fall 2014, Question 24
Study guide: Exam 5
An insurer's policyholders were exposed to a severe storm that occurred on December 1, 2013. As of December 31, 2013, the claims related to the storm have been recorded in the claims system, but payments on the claims have not yet been processed. The claim history does not include any severe storms.
The following information is available for accident year 2013 as of December 31, 2013:
- Reported claims = $20,000.
- Paid claims = $5,000.
- Initial expected claims as of the beginning of the accident year = $100,000.
- 12-month age-to-ultimate factor for reported claims = 8.000.
- 12-month age-to-ultimate factor for paid claims = 20.000.
Part a (0.75 points)
Identify a technique that will result in a reasonable estimate of ultimate claims. Calculate ultimate claims for accident year 2013 using the identified technique and briefly describe why the estimate is reasonable.
Part b (0.75 points)
Identify a technique that will overstate the estimate of ultimate claims. Calculate ultimate claims for accident year 2013 using the identified technique and briefly describe why the estimate is overstated.
Part c (0.75 points)
Identify a technique that will understate the estimate of ultimate claims. Calculate ultimate claims for accident year 2013 using the identified technique and briefly describe why the estimate is understated.
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