CAS Exam 5 Fall 2017, Question 20
Study guide: Exam 5
Given the following information about an insurance company's workers compensation book of business as of December 31, 2016:
| Accident Year | Payroll ($00) | Reported Claims ($000) | Indicated Ultimate Claim Counts | Selected Ultimate Severity |
|---|---|---|---|---|
| 2013 | 306,000 | 15,450 | 2,300 | 7,000 |
| 2014 | 313,000 | 17,000 | 2,400 | 7,500 |
| 2015 | 318,000 | 14,625 | 2,500 | not provided |
| 2016 | 325,000 | 11,000 | not provided | not provided |
- Annual inflation rate for payroll = 2%.
- Annual claim count trend = 1%.
- Annual severity trend = 8%.
- The cumulative reported claims development factor at 12 months = 1.8.
Part a (1.75 points)
Select and briefly justify an ultimate frequency estimate for accident year 2016.
Part b (0.5 points)
Select an appropriate ultimate severity estimate for accident year 2016.
Part c (0.75 points)
Calculate accident year 2016 ultimate claims using a Bornhuetter-Ferguson technique that blends the reported development technique with the frequency-severity technique.
Answer this question and see the worked solution