CAS Exam 7 Spring 2016, Question 8
Study guide: Exam 7
Two actuaries estimate the exponential claim size model parameters at the cost level of exposure year 5 and at the same basic limit via Sahasrabuddhe's approach to claim size modeling as follows:
| Actuary | Development Interval 1 | 2 | 3 | 4 | 5 |
|---|---|---|---|---|---|
| A | 50,000 | 120,000 | 165,000 | 195,000 | 205,000 |
| B | 25,000 | 65,000 | 95,000 | 115,000 | 120,000 |
All other assumptions made by the actuaries are the same.
Both actuaries use their claim size model to estimate cumulative development factors adjusted for trend and limit changes. They then compare these factors to the unadjusted cumulative development factors calculated using weighted-average link ratios that use all available development periods.
Part a (0.75 points)
Identify which actuary's modeled development factors deviate further from the unadjusted development factors and explain the effect of different claim size parameters on modeled development patterns that causes such a result.
Part b (0.5 points)
Briefly describe two other modeling choices that could have created larger differences between the modeled factors and the unadjusted factors, assuming there had been differences in the actuaries' other assumptions.
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