CAS Exam 5 Fall 2016, Question 20
Study guide: Exam 5
An actuary is calculating ultimate claim estimates for a long-tailed line of business using the frequency-severity technique using disposal rates. Given the following information:
- This line of business commonly has partial payments made on claims.
- Recently the statute of limitations was extended, resulting in a significant increase in claim counts at later development periods compared to previous years.
- The claims department has been strengthening case reserves for the last several years.
- There has been significant claim inflation over the last several years.
- The claims department has been attempting to settle claims faster.
Part a (0.5 points)
Briefly describe two reasons the frequency-severity technique using disposal rates may be appropriate in the current situation.
Part b (0.5 points)
Briefly describe two reasons the frequency-severity technique using disposal rates may not be appropriate in the current situation.
Part c (0.5 points)
Briefly describe an adjustment to the frequency-severity technique using disposal rates for each of the issues listed in part b. above.
Answer this question and see the worked solution