CAS Exam 7 Spring 2012, Question 4
Study guide: Exam 7
Given the following information:
| Accident Year | Incurred Loss Ratio as of 36 Months | Incurred Loss Ratio as of 48 Months |
|---|---|---|
| 2006 | 0.222 | 0.375 |
| 2007 | 0.451 | 0.675 |
| 2008 | 0.446 | 0.605 |
| 2009 | 0.228 |
Part a (1.5 points)
Estimate the loss ratio for accident year 2009 as of 48 months using the least squares method.
Part b (1.5 points)
An alternate approach to estimating the accident year 2009 loss ratio as of 48 months is to use the arithmetic average of the link ratio method and the budgeted loss ratio method. Using the answer from part a. above, demonstrate whether this averaging approach is optimal.
Answer this question and see the worked solution