CAS Exam 7 Spring 2018, Question 13
Study guide: Exam 7
An insurer uses the following information in an over-dispersed Poisson (ODP) bootstrap process by building a generalized linear model (GLM) based on incremental paid loss.
Cumulative Reported Loss ($000) as of (months):
| Accident Year | 12 | 24 | 36 |
|---|---|---|---|
| 2015 | 180 | 230 | 235 |
| 2016 | 200 | 180 | |
| 2017 | 225 |
Open Claims as of (months):
| Accident Year | 12 | 24 | 36 |
|---|---|---|---|
| 2015 | 3 | 1 | 0 |
| 2016 | 5 | 3 | |
| 2017 | 6 |
Case reserves are set based on the maturity of the claim:
- 12 months = $15,000 per claim
- 24 months = $10,000 per claim
- 36 months = $0 per claim.
Part a (0.5 points)
Briefly describe two practical limitations of a log-link GLM bootstrap modeling framework.
Part b (1.25 points)
Construct a log-link triangle that can be used to solve for the GLM parameters.
Part c (1 point)
Calculate the fitted incremental paid results of the GLM model using the following parameters:
\alpha_1 = 5.04\alpha_2 = 4.66\alpha_3 = 4.91\beta_2 = -0.86\beta_3 = -1.47
Answer this question and see the worked solution