CAS Exam 5 Spring 2016, Question 5
Study guide: Exam 5
An insured had a mature claims-made policy with Insurer A in 2011 and 2012 before switching to an occurrence policy with Insurer B in 2013 and 2014. Below are the losses incurred over a 5-year period:
| Accident Date | Report Date | Claim Amount |
|---|---|---|
| July 1, 2010 | October 1, 2012 | $1,000 |
| August 1, 2010 | November 1, 2011 | $2,000 |
| January 1, 2011 | March 1, 2014 | $2,000 |
| April 1, 2011 | May 1, 2011 | $3,000 |
| June 1, 2012 | December 1, 2012 | $4,000 |
| March 1, 2013 | February 1, 2015 | $5,000 |
| April 1, 2013 | June 1, 2014 | $3,000 |
| April 1, 2014 | August 1, 2014 | $2,000 |
- Policies are effective on January 1 of each year.
- All policies are annual.
Part a (0.5 points)
Determine the loss amount each insurer pays.
Part b (0.5 points)
Briefly discuss two reasons why occurrence policy ultimate loss estimates are more volatile than claims-made policy ultimate loss estimates.
Part c (0.5 points)
Discuss whether an occurrence policy or a claims-made policy is likely to earn more investment income, assuming a stable interest rate environment.
Answer this question and see the worked solution