Fall 2017 Q27 b) ii)

judyohjudyoh
edited August 2023 in F-15-Evaluation
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I'm not understanding the solution. I see that case reserve adequacy has increased so CDFs are higher than they should be and this will cause the reported development ultimate to be too high, unreported % to be too high, and reported % to be too low. How do these considerations lead to the conclusion that the ultimate will be overstated?

In particular:

In the second bullet point of the solution, wouldn't a high unreported % multiplying the ECR ultimate be offset by a low unreported % multiplying the reported method ultimate?

And does this not contradict the first bullet point saying that historical % unreported is lower after the case change?

Comments

  • GrahamGraham

    I think that's a mistake in the solution because if the CDFs are too high then:

    • % reported is low
    • % unreported is high

    You can always go into a deeper analysis on questions of accuracy but each subpart of this question was only worth 0.25 points so your answer can be very short: Here is the simplest way I can I think of to explain it:

    • Case reserve strengthening causes the unadjusted reported development method to overstate the true ultimate.
    • Since the reported BF method is a weighted average between the ECR method and reported development method, the reported BF ultimate will also be too high.

    There are several different of expressing this but the final answer is always that the estimate of ultimate will be too high.

    Side note: Always pay attention to how many points a question is worth because that indicates how detailed your answer needs to be. For this particular exam question, very brief answers would be acceptable.

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