CAS Exam 7 Spring 2019, Question 5
Study guide: Exam 7
A Cape Cod loss reserving calculation has the following inputs and estimates:
- Total premium is $10,000,000.
- Estimated ELR is 65%.
- Process variance/mean ratio is 50,000.
- The parameter covariance matrix is:
| ELR | \omega |
\theta |
|
|---|---|---|---|
| ELR | 0.0029 | -0.0042 | 0.19 |
\omega |
-0.0042 | 0.0055 | -0.41 |
\theta |
0.19 | -0.41 | 25.52 |
Part a (1 point)
Calculate the coefficient of variation of prospective losses.
Part b (0.5 points)
Briefly describe what process variance and parameter variance of the prospective losses measure.
Part c (0.5 points)
Briefly describe whether the Cape Cod method typically has a higher or lower parameter variance than the chain ladder method.
Answer this question and see the worked solution