CAS Exam 7 Spring 2016, Question 9
Study guide: Exam 7
An insurer has written a book of workers compensation business for 20 years with a per-occurrence deductible of $250,000.
Given the following insurer and industry information:
| Hazard Group | Insurer Premium Distribution | Industry Unlimited Expected Loss Ratio | Industry Excess Ratio at $250,000 |
|---|---|---|---|
| 1 | 50% | 45% | 0.05 |
| 2 | 30% | 50% | 0.10 |
| 3 | 10% | 50% | 0.20 |
| 4 | 10% | 60% | 0.40 |
Given the following information for the insurer:
- All 2014 claims have been reported by December 31, 2015
- 2014 earned premium is $50,000,000
- 2014 reported insurer-retained losses as of December 31, 2015 are $2,500,000
| Severity | Amount |
|---|---|
| Unlimited severity at ultimate | $5,000 |
| Unlimited severity at 24 months | 3,200 |
| Deductible severity at ultimate | 2,000 |
| Deductible severity at 24 months | 1,500 |
Part a (0.5 points)
Estimate the 2014 ultimate insurer-retained losses, incorporating the given industry information.
Part b (1.25 points)
Estimate the 2014 ultimate insurer-retained losses using only the insurer's information.
Part c (0.5 points)
Provide one reason for and one reason against selecting the estimate calculated in part a. above as opposed to the estimate calculated in part b. above.
Answer this question and see the worked solution
Concepts tested
- Deductible
- Loss Development
- Excess Loss Development Factor
- Implied Development Method
- Excess Insurance