CAS Exam 7 Spring 2016, Question 2
Study guide: Exam 7
Given the following information ($000,000):
| Accident Year | Cumulative Reported Loss @ 24 Months | Ultimate Loss |
|---|---|---|
| 2011 | 36 | 75 |
| 2012 | 40 | 71 |
| 2013 | 35 | 64 |
| 2014 | 25 |
Part a (1.25 points)
Using the least squares method, estimate ultimate loss for accident year 2014.
Part b (0.5 points)
For each of the following scenarios, briefly describe a potential problem with the output of the least-squares method:
- i. The slope parameter is negative.
- ii. The intercept parameter is negative.
Part c (1.5 points)
Due to a regulatory change, the following is anticipated:
- No change in the reporting pattern.
- Standard deviation of reported loss as of 24 months will be 10% of estimated ultimate loss.
- Expected ultimate loss for accident year 2014 will decrease 20%.
- Standard deviation of accident year 2014 ultimate loss is expected to be $6,000,000.
Using the Bayesian credibility method, estimate the revised ultimate loss for accident year 2014.
Answer this question and see the worked solution