CAS Exam 5 Spring 2014, Question 14
Study guide: Exam 5
The actuary for an insurer has estimated the following results for accident year 2013 as of December 31, 2013:
- Percentage unpaid at 12 months = 80%.
- Accident year 2013 case outstanding = $22,000.
- Ultimate claims estimate based on the reported claim development technique = $102,500.
- Ultimate claims estimate based on the paid claim development technique = $95,000.
- Ultimate claims estimate based on the expected claims technique = $100,000.
Part a (1.25 points)
Estimate ultimate claims using the reported Bornhuetter-Ferguson technique for accident year 2013 as of December 31, 2013.
Part b (0.5 points)
Identify two situations when the ultimate claims estimate from the reported claim development technique will equal the ultimate claims estimate from the reported Bornhuetter-Ferguson technique.
Part c (1 point)
Identify two situations when the Bornhuetter-Ferguson technique is preferable to the claim development technique and briefly explain why.
Answer this question and see the worked solution