CAS Exam 7 Spring 2018, Question 8
Study guide: Exam 7
Given the following information:
Observed Age-to-Age Loss Development Factors as of (years):
| AY | 1-2 | 2-3 | 3-4 | 4-5 |
|---|---|---|---|---|
| 1 | 1.700 | 1.350 | 1.100 | 1.050 |
| 2 | 2.500 | 1.550 | 1.080 | |
| 3 | 2.000 | 1.400 | ||
| 4 | 1.800 |
- There is no development after the 5th period.
- Probability of a standard normal variate lying in the interval (-0.67, 0.67) is 50%.
Part a (2 points)
Evaluate whether subsequent columns of development factors exhibit correlation using Spearman's rank at a 50% confidence threshold.
Part b (0.5 points)
Briefly describe two reasons why it is more appropriate to test the triangle as a whole rather than correlation between pairs of columns.
Part c (0.25 points)
Identify which assumption of the chain ladder method is being evaluated in part a. above.
Answer this question and see the worked solution
Concepts tested
- Chain Ladder Method
- Development Factor
- Hypothesis Testing
- Development Factor Correlation Test
- Mack Chain Ladder Model