CAS Exam 7 Spring 2019, Question 2
Study guide: Exam 7
Given the following information as of December 31, 2018:
| Accident Year | Earned Premium ($000) | Incremental Paid Loss at 12 Months ($000) | Incremental Paid Loss at 24 Months ($000) | Incremental Paid Loss at 36 Months ($000) |
|---|---|---|---|---|
| 2016 | 5,000 | 1,800 | 700 | 500 |
| 2017 | 6,000 | 2,000 | 800 | |
| 2018 | 8,000 | 2,200 |
- Assume there is no further development after 36 months.
Var[U_i] = Var[U_i^{BC}]
Part a (1.5 points)
Calculate the accident year 2018 Benktander reserve estimate (R^{GB}).
Part b (0.5 points)
Calculate the accident year 2018 optimal credible reserve estimate (R_c).
Part c (0.5 points)
Identify which of R_c or R^{GB} is the preferable reserve from a statistical point of view and briefly describe a supporting reason.
Part d (0.5 points)
Describe the effect on the Benktander credibility for accident year 2018 if the incremental paid loss from 12 to 24 months for accident year 2017 was greater than the value in the table above.
Answer this question and see the worked solution