CAS Exam 7 Spring 2019, Question 7
Study guide: Exam 7
Given the following information for a company as of December 31, 2018:
Cumulative Case Incurred Losses ($000,000):
| Accident Year | 12 Months | 24 Months | 36 Months | 48 Months | 60 Months | 72 Months |
|---|---|---|---|---|---|---|
| 2013 | 3,384 | 4,282 | 4,813 | 5,408 | 5,394 | 5,362 |
| 2014 | 3,499 | 4,438 | 5,646 | 5,532 | 5,512 | |
| 2015 | 3,483 | 5,566 | 5,539 | 5,398 | ||
| 2016 | 6,502 | 6,197 | 6,222 | |||
| 2017 | 6,656 | 6,658 | ||||
| 2018 | 6,595 |
Case Incurred Loss Development Factors:
| Accident Year | 12-24 | 24-36 | 36-48 | 48-60 | 60-72 |
|---|---|---|---|---|---|
| 2013 | 1.265 | 1.124 | 1.124 | 0.997 | 0.994 |
| 2014 | 1.268 | 1.272 | 0.980 | 0.996 | |
| 2015 | 1.598 | 0.995 | 0.975 | ||
| 2016 | 0.953 | 1.004 | |||
| 2017 | 1.000 |
Part a (1.75 points)
Test the null-hypothesis that there are no calendar year influences in the data using Mack's methodology assuming an error probability of 5% where:
E[Z] = 3.25Var(Z) = 1.06- The 97.5th percentile of the Standard Normal distribution is 1.96.
Part b (1.5 points)
The graph below shows the weighted residuals of case incurred losses for maturities of 24, 36, and 48 months.
Discuss whether the results above could be explained by each of the following:
- i. Sustained increase in calendar year trend rate in 2016.
- ii. Increase in case reserve adequacy in 2016.
- iii. Acceleration of loss payment in 2016.
Answer this question and see the worked solution
Concepts tested
- Chain Ladder Method
- Calendar Year
- Case Reserves
- Calendar Year Effect
- Chain Ladder Assumptions
- Data Diagnostic Analysis