CAS Exam 5 Spring 2016, Question 22

Study guide: Exam 5

Given the following information:

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

Cumulative Paid ALAE ($) as of (months):

Paid Claims Development Factors:

Paid ALAE Development Factors:

• Prior to 2015, the insurer operated in a steady state environment. Data prior to accident year 2011 exists but is not shown above.
• Claims and ALAE trend = 0%.
• Total case outstanding as of December 31, 2015 = $21,000.
• Total IBNR as of December 31, 2015 = $5,000.
• In 2015, the insurer began to use its own legal department on more claims in an effort to reduce legal expenses.
• Legal department salaries are not allocated to specific claims and thus are recorded as ULAE.
• The legal fees from outside attorneys are billed to specific claims and recorded as ALAE.
• The change in attorney expenses resulted in a 50% decline in ALAE and a 30% increase in ULAE; the new expense ratios are expected to persist through future calendar years.

Part a (1 point)

Estimate the total unpaid ALAE as of December 31, 2015 for all accident years.

Part b (0.5 points)

Estimate the total unpaid ULAE as of December 31, 2015 using the classical technique.

Part c (0.75 points)

Assume that prior to the change in 2015, half of ULAE was sustained when claims were reported. Fully assess the reasonableness of the estimate provided in part b. above.

Answer this question and see the worked solution

Concepts tested

• Accident Year
• Development Factor
• Calendar Year
• Loss Development
• Unallocated Loss Adjustment Expenses ULAE
• Allocated Loss Adjustment Expense

More questions from this set

• CAS Exam 5 Spring 2016, Question 21
• CAS Exam 5 Spring 2016, Question 23