2018 Fall Q13
Part A: In the question it mentions to "provide two reasons". In the examiners report it shows multiple samples (8). Is the expectation that two of the samples need to be provided for full credit?
Part B: Would "retroactive reinsurance purchases" be an acceptable answer? My thoughts are yes since Schedule P is net of reinsurance - unless I am missing something.
Thanks!
Comments
It's good you're looking at this problem because it's a really good exam problem to study and the answers are very well explained in the examiner's report.
Part A:
Part B:
Perfect, thank you very much for the thorough response!
A few questions:
Is there still a link somewhere to Formula Summary: Schedule P that shows sample diagnostics? I’m not seeing it on the wiki.
Would it have been an acceptable answer to say that in the average case outstanding triangle in AY 2015, the average case outstanding amounts are increasing across the calendar years indicating inadequate reserves?
Can you explain what is meant by the unadjusted reported loss development method?
I'll find out about the Formula Summary and let you know.
Average reserve will start out increasing through development years before they turn to decrease; this would not be an indication of inadequate reserves.
The sample answer itself is a rudimentary answer. It could be that the average reserve is decreasing "along the diagonal" to reach a more adequate level, for example due to change in business mix. And it's also possible that reserves are weakening so that using historical reported ldfs will result in understating required reserves.
They are referring to a Berquist-Shermann-style adjustment to reported ldfs by projecting the latest levels of case OS back to the history of the triangle. This is a topic of Exam 5.
Here is the formula sheet:
https://battleacts6us.ca/pdf/Summary_(6US)_05_Sched_P.pdf
Thanks! I have the same question about two reasons (two metrics) in part a.!:)))
amberxmc, has your question been answered by the previous posts here?
Just to clarify, they make mention of adjusting LDFs because if there is a change in case reserve adequacy or settlement patters or mix of business, assumptions of chain ladder method would no longer hold, correct?
Yes, correct.