CAS Exam 6C Spring 2014, Question 15
Study guide: Exam 6C
Given the information for a Canadian P&C insurer:
Summary of Assets which Support Policy Liabilities
| Description | Interest Rate | Maturity Date | Par Value | Market Value | Market Yield | Effective Market Yield | Modified Duration |
|---|---|---|---|---|---|---|---|
| BOND A | 3.10% | 18/6/40 | $2,055,000 | $2,638,691 | 1.82% | 1.83% | 20.13 |
| BOND B | 4.56% | 26/3/40 | $1,080,000 | $1,321,528 | 3.33% | 3.36% | 16.91 |
| BOND C | 4.99% | 30/10/37 | $200,000 | $247,497 | 3.57% | 3.61% | 15.57 |
| Total | $3,335,000 | $4,207,716 |
| Accident Year | Gross Paid Loss ($000s) | Gross Case Reserve ($000s) | Gross Incurred Loss ($000s) | Gross Ultimate Loss ($000s) |
|---|---|---|---|---|
| 2010 | $1,788 | $0 | $1,788 | $1,788 |
| 2011 | $1,025 | $1,025 | $2,050 | $2,050 |
| 2012 | $357 | $2,023 | $2,380 | $2,380 |
| Total | $3,170 | $3,048 | $6,218 | $6,218 |
Cumulative Accident Year Payment Pattern
| Maturity | Percentage Paid |
|---|---|
| 12 | 15% |
| 24 | 50% |
| 36 | 100% |
Other information:
- Margin for adverse deviation for investment rate return: 25 basis points
- Margin for adverse deviation for claims development: 500 basis points
- All bonds are categorized as Available for Sale.
Assume that all payments are made in the middle of the year.
Using a discount rate calculated from the bond information given above, calculate the unpaid claims liability as at December 31, 2012.
Part a (2.5 points)
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