Fall 2018 Q18(b)

keshav1996keshav1996
in F-10-CapeCod

Hi,

Isn't the solution given in examiners' report slightly counter-intuitive. I have reproduced the LDFs in the following screenshot-

image.png

You see that as there is speed up in reporting from AY 2015, and I am using simple avg of all years to find LDFs. So, the LDFs and hence, CDFs would now be lower (% reported will be higher and that makes sense as both numerator and denominator increase for age to age factors due to more volume of losses) than without including new insureds for each AY. That would make the Used up premium higher leading to lower ECR for cape cod and thus underestimating ultimates. The solution says that the ultimates will be overstated.


Please explain.

Comments

  • GrahamGraham

    Your reasoning is correct up until the very last thing you stated:

    • the true CDFs should be lower
    • so the %reported should be higher
    • so the used-up premium should be higher
    • so the true ECR should be lower

    If the true ECR is lower than what you used in your calculation, then the true final answer should be lower than what you calculated. In other words, the ultimate that you actually calculated (using all years for the LDF selections) is higher than the true answer.

  • keshav1996keshav1996

    Ohh right! I got it. Thank you so much..

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