CAS Exam 6C Fall 2013, Question 21
Study guide: Exam 6C
Given the following information regarding an insurance company's paid losses and discounted claim liabilities:
Paid Losses During Calendar Year (CY) ($000s):
| As of CY | Accident Year 2010 | Accident Year 2011 | Accident Year 2012 | Total |
|---|---|---|---|---|
| 2010 | $52,000 | $52,000 | ||
| 2011 | $21,000 | $51,000 | $72,000 | |
| 2012 | $18,000 | $33,000 | $67,000 | $118,000 |
Discounted Claim Liabilities ($000s):
| As of CY | Accident Year 2010 | Accident Year 2011 | Accident Year 2012 | Total | Annual Yield |
|---|---|---|---|---|---|
| 2010 | $59,000 | $59,000 | 3.50% | ||
| 2011 | $35,000 | $63,000 | $98,000 | 4.50% | |
| 2012 | $27,000 | $45,000 | $74,000 | $146,000 | 4.00% |
Excess (Deficiency) During CY 3 – By Accident Year ($000s):
| Accident Year | Paid Losses During 2012 (1) | Discounted Claim Liabilities 2012 (2) | Discounted Claim Liabilities 2011 (3) | Investment Income in 2012 on unpaid claims (4) | Excess (Deficiency) During 2012 (5) |
|---|---|---|---|---|---|
| 2010 | $18,000 | $27,000 | $35,000 | A | B |
| 2011 | $33,000 | $45,000 | $63,000 | C | D |
| 2012 | $67,000 | $74,000 | - | E | - |
Part a (1.25 points)
Calculate the cumulative excess/deficiency ratio for accident year 2010 as of December 31, 2012.
Part b (0.25 points)
One way to account for the time value of money is to explicitly calculate an amount of investment income as in the table above. Briefly describe another way to account for the time value of money when calculating excess/deficiency amounts.
Answer this question and see the worked solution