Actuarial Notes

CAS Exam 5 Fall 2016, Question 19

Study guide: Exam 5

A company that self-insures has the following limited historical information:

Cumulative Reported Claims ($000) as of (months):

Accident Year 12 24 36 48
2012 4,000 6,000 7,500 8,250
2013 5,000 7,500 9,375
2014 6,000 9,000
2015 7,500

Cumulative Paid Claims ($000) as of (months):

Accident Year 12 24 36 48
2012 1,600 4,000 6,000 7,500
2013 2,000 5,000 7,500
2014 2,400 6,000
2015 3,000

Industry Benchmark Claims Development Factors:

Age-Age Reported Paid
60-Ult 1.015 1.100
48-60 1.025 1.150
36-48 1.050 1.250
24-36 1.150 1.500
12-24 1.250 2.500
  • Case outstanding for accident year 2011 as of December 31, 2015 = $500,000.

Part a (0.75 points)

Use the industry benchmark claims development factors to estimate the unpaid claims for accident year 2011 as of December 31, 2015.

Part b (1 point)

Assess the reasonableness of using the industry benchmark reported and paid claims development factors for this company.

Part c (0.5 points)

Given the response to part b. above, discuss the reasonableness of the estimate in part a. above.

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