Spring 2019, #24, A

rwhiting

The question states that "the reinsurer is looking to commute all three accident years," but the solution itself only seems to consider AY 2017 (at both 12 and 24 months age) when calculating the discounted opinions of reserves. To be honest, I do not know what the question means when they talk about all three accident years, as I only see two (2017 and 2018) in the given triangles. When I first attempted the problem, I added up all the years and ages to come up with my discounted opinions of reserves, but this is apparently wrong according to the solution.

graham

2 things:

• They misstated the question. There are only 2 AYs not 3. It seems like a small thing but when you're stressed out in the middle of the exam, it can throw you off, so that's on them.
• I see what mean when you say it looks like they only used AY 2017, but if you look more carefully, the reserves for AY 2018 at 12 months are actually the same as for AY 2017 at 12 months. The correct solution would sum the reserves for AY 2018 at 12 months and AY 2017 at 24 months. (You do this for both the primary insurer ceded amounts and the reinsurer reserves as shown in the solution.)

If I had created this question, I probably would have made sure that the reserves for AY 2017 at 12 months were different from AY 2018 at 12 months just to avoid this type of confusion. (Otherwise someone could do the problem incorrectly using AY 2017 at 12 months but still get the right answer.)

rwhiting

Thanks, Graham. The question makes sense to me now.