CAS Exam 7 Spring 2018, Question 3
Study guide: Exam 7
Given the following information as of December 31, 2017:
| AY | Earned Premium ($000) | Cumulative Paid Loss ($000) as of 12 months | 24 months | 36 months | 48 months |
|---|---|---|---|---|---|
| 2014 | 8,000 | 2,500 | 3,335 | 3,942 | 4,021 |
| 2015 | 8,320 | 2,100 | 2,705 | 3,335 | |
| 2016 | 8,650 | 3,000 | 4,113 | ||
| 2017 | 9,000 | 3,500 |
- Assume there is no further development after 48 months.
t_i = \sqrt{p_i}E[\alpha_2^2(U_2)] = 2{,}000
Calculate the mean squared error for both the individual loss ratio method and the collective loss ratio method, and determine which is preferable for estimating R_{2015}.
Part a (2 points)
Answer this question and see the worked solution