CAS Exam 7 Spring 2012, Question 3
Study guide: Exam 7
Given the following information as of December 31, 2011:
| Accident Year | Cumulative Incurred Losses ($000) as of 24 Months | Cumulative Incurred Losses ($000) as of 36 Months |
|---|---|---|
| 2004 | 2,000 | 2,600 |
| 2005 | 4,000 | 6,000 |
| 2006 | 6,500 | 11,700 |
| 2007 | 6,000 | 10,000 |
| 2008 | 3,600 | 6,600 |
| 2009 | 7,600 | 11,000 |
| 2010 | 5,000 |
Part a (2 points)
Using a volume-weighted average to calculate the overall age-to-age factor, create a plot of weighted residuals following Mack's methodology.
Part b (0.5 points)
Based on the residual plot, assess whether the variance assumption underlying the chain ladder method has been met.
Answer this question and see the worked solution