Exam 7 Practice Question 4
Study guide: Exam 7
A chain ladder analysis of a liability book gives a reserve estimate of R = 4{,}000 with a standard error of 2,600. Because the standard error is more than half the reserve, the actuary follows Mack (1994) and approximates the reserve distribution by a lognormal distribution whose mean and variance equal the reserve estimate and the square of its standard error.
Using z = -1.28 for the 10th percentile of the standard normal distribution, calculate the 10th percentile of the reserve under this lognormal approximation.
- A) Less than 1,000
- B) At least 1,000, but less than 1,500
- C) At least 1,500, but less than 1,700
- D) At least 1,700, but less than 2,000
- E) At least 2,000
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