SOA Exam FAM Sample Question 73
Study guide: Exam FAM
You are given:
i) An insurance company was formed to write workers compensation business in CY1.
ii) Earned premium in CY1 was 1,000,000.
iii) Earned premium growth through CY3 has been constant at 20% per year (compounded).
iv) The expected loss ratio for AY1 is 60%.
v) As of December 31, CY3, the company's reserving actuary believes the expected loss ratio has increased two percentage points each accident year since the company's inception.
vi) Selected reported loss development factors are as follows:
| 12 to 24 months | 1.500 |
| 24 to 36 months | 1.336 |
| 36 to 48 months | 1.126 |
| 48 to 60 months | 1.057 |
| 60 to 72 months | 1.050 |
| 72 to ultimate | 1.000 |
Calculate the total IBNR reserve as of December 31, CY3 using the Bornhuetter-Ferguson method.
- A) 964,000
- B) 966,000
- C) 968,000
- D) 970,000
- E) 972,000
Answer this question and see the worked solution