CAS Exam 7 Spring 2018, Question 5
Study guide: Exam 7
Given the following information about accident year 2017 as of December 31, 2017:
- Accident year 2017 paid loss = $850,000.
- 2017 earned premium = $4,000,000.
- Initial expected loss ratio = 67.5%.
- 12-24 month incremental paid link ratio = 1.60.
- 12-ultimate cumulative paid LDF = 3.00.
Part a (1.5 points)
Determine the accident year 2017 incremental paid loss in 2018 that would result in the Benktander ultimate loss estimate being $100,000 less than the Bornhuetter-Ferguson ultimate loss estimate for accident year 2017 as of December 31, 2018. Assume all development factors are unchanged.
Part b (0.25 points)
Briefly describe when the Benktander ultimate loss estimate would be greater than the Bornhuetter-Ferguson ultimate loss estimate as of December 31, 2018.
Part c (0.5 points)
Explain why it may not be appropriate to use the Bornhuetter-Ferguson method when losses develop downward.
Answer this question and see the worked solution