CAS Exam 5 Spring 2019, Question 17
Study guide: Exam 5
Given the following information for a company that writes the same line of business in Region 1 and Region 2, as of December 31, 2018:
Reported Claims
| Accident Year | Region 1 | Region 2 | Combined |
|---|---|---|---|
| 2016 | 180,000 | 200,000 | 380,000 |
| 2017 | 150,000 | 180,000 | 330,000 |
| 2018 | N/A | 180,000 | 180,000 |
Reported Age-to-Ultimate Factors
| Age | Region 1 | Region 2 |
|---|---|---|
| 12-Ult | 2.283 | 1.558 |
| 24-Ult | 1.154 | 1.192 |
Earned Premium
| Calendar Year | Region 1 | Region 2 | Combined |
|---|---|---|---|
| 2016 | 900,000 | 900,000 | 1,800,000 |
| 2017 | 1,000,000 | 1,000,000 | 2,000,000 |
| 2018 | 1,610,000 | 690,000 | 2,300,000 |
Annual Industry Trends
| Region 1 | Region 2 | Combined | |
|---|---|---|---|
| Frequency | -2% | 0% | -1% |
| Severity | 10% | 0% | 5% |
| 40.0% | Region 2 accident year 2016 expected claims ratio |
| 45.8% | Combined accident year 2016 expected claims ratio |
- Equal amount of business is underwritten in Regions 1 and 2 for the entire industry.
- The company is subject to the same claims trends as the industry.
- Each region is fully credible.
- There have been no rate changes in 2017 or 2018.
- There is no premium trend.
Part a (1 point)
Estimate the ultimate claims for region 1 for accident year 2017 using the reported Bornhuetter-Ferguson technique.
Part b (1.25 points)
Estimate the total ultimate claims for region 1 and region 2 for accident year 2018 using the reported Bornhuetter-Ferguson technique.
Part c (0.5 points)
Construct an argument against using the combined data to estimate the ultimate claims for accident year 2018.
Answer this question and see the worked solution