CAS Exam 7 Spring 2012, Question 10
Study guide: Exam 7
Given the following information for two proportional casualty treaties as of December 31, 2011:
| Treaty ID | Inception Date | Treaty Coverage Basis | Written Premium | Aggregate Reported Loss |
|---|---|---|---|---|
| A | Jan 1, 2009 | Loss Occurring | $80,000 | $50,000 |
| B | Jul 1, 2009 | Policies Written | 100,000 | 20,000 |
| Age of Accident Year (in months) | Age to Ultimate LDF |
|---|---|
| 36 | 1.25 |
| 24 | 2.00 |
| 12 | 3.00 |
- Both treaties have a one-year term.
- All underlying policies are one-year, occurrence-based policies with effective dates uniformly distributed over the year.
- Treaty A commission, brokerage and internal expense is 5% of premium.
- Treaty B commission, brokerage and internal expense is 20% of premium.
- The loss development factors apply to all exposures in the applicable accident year.
Part a (2 points)
Estimate the ultimate losses for the two treaties combined using the Stanard-Bühlmann method.
Part b (0.25 points)
Identify a situation in which the chain ladder method is preferred over the Stanard-Bühlmann method when estimating IBNR for a reinsurer with long-tail exposures.
Part c (0.25 points)
Identify a situation in which the Stanard-Bühlmann method is preferred over the chain ladder method when estimating IBNR for a reinsurer with long-tail exposures.
Part d (0.25 points)
Identify the key innovation of the Stanard-Bühlmann method over the Bornhuetter-Ferguson method.
Answer this question and see the worked solution
Concepts tested
- Cape Cod Method
- Reinsurance
- Bornhuetter-Ferguson Method
- Losses-Occurring-During and Risks-Attaching
- Reinsurance Reserving