CAS Exam 8 Fall 2015, Question 8
Study guide: Exam 8
An actuary is working with ground-up historical loss data and is considering fitting one continuous curve to this data to calculate ILFs for higher limits.
The last time such an analysis was conducted, empirical losses were used to determine ILFs directly without fitting a continuous curve to the data.
Part a (1 point)
Provide two shortcomings of using empirical data to determine ILFs and briefly describe how curve fitting may overcome each of these shortcomings.
Part b (1.5 points)
There is a concern that fitting one continuous curve to the entire distribution of losses will overstate losses over certain intervals and understate losses over other intervals. Propose and fully describe a solution that addresses this concern while still incorporating an element of curve fitting in the solution.
Answer this question and see the worked solution