ch17 doubts

keshav1996keshav1996
edited February 2021 in F-17-ULAE
  1. How does Paid ULAE rise immediately with a growth in premiums? (and thus making it one of the factors that makes the classical method less appropriate to use)
  2. What does the assumption that 'reserves are perfectly accurate (neither excessive nor deficient)' and thus its implication CY incurred=AY incurred mean?
  3. In the PDF Practice: 4 ULAE problems (like 2018.Spring #23), it has been told to calculate unpaid ULAE for a specific AY, while we are given the case o/s and IBNR for all AYs combined to apply the formula. In the answer if we use this case and IBNR then it won't be the unpaid ULAE for that specific AY only. So, is there a mismatch in the question or am I getting it wrong?
  4. In Fall 2019 (Q24), an ECR has been given which along with the reported amounts and % unreported given has been used to calculate ultimates using BF method (and thus IBNYR!) in the original examiners report. However, couldn't we have simply divided reported $s by (1-% reported) without using the ECR given because the method to calculate ultimates hasn't been specified? Obviously we'll get different answers in that case..
  5. Did not understand the proxy taken & the formula for Simplified Generalized Kittel approach. As per explanation, there's a proxy needed for R while calculating claim basis B and just below it it says to calculate B and W as usual and rather adjust the formula for Unpaid ULAE (and not for B).
  6. How does the Wendy Johnson method take account of the assumption it is based on, in its formula.

Thanks!

Comments

  • GrahamGraham

    question 1

    • Paid ULAE may rise immediately when premium increases because a company might decide to buy more computers or rent more office space to accommodate the expected increase in costs associated with more policies written and hence more claims. This would cause the ULAE ratio to rise and the unpaid ULAE estimate to be over-estimated in the short-term until paid claims catches up and the ULAE re-stabilizes at it's previous level.

    question 2

    • I am going to remove that statement from the wiki. As I noted just below where it was written, this doesn't really help you in solving the problem and now that I've looked at it again, I think it's more confusing than helpful.
    • But just to provide a brief explanation of what I meant: When I say reserves are perfectly accurate, I'm referring to case reserves. This means that claims are paid for the exact amount of their original reserve. And in a steady-state environment where the loss ratio is also stable, the calendar year losses will generally equal the accident year losses. Otherwise, AY loss ratios are usually leading indicators for where CY loss ratios will be going. I'm not sure now why I originally included that comment. Must have been a late night.

    question 3

    • The case, IBNR, and %-case of IBNR should pertain to the AY given earlier in the problem. I forgot to label the second box of given information with the AY.

    question 4

    • That's a good observation. What you're describing of course is the development method, which is in general a valid method. But if you do the calculation, you will get an estimate of ultimate similar to theirs for 2015 and 2016 but the development method will be much higher for 2017 and 2018. That's because the ECR of 45% is very low relative to what's been reported. There must be a reason they expect the ECR to only be 45% so it's probably better to incorporate that into your solution, which means to use the BF method.

    question 5

    • What I meant was theoretically B is calculated the same way as with Congor-Nolibos. In practice however, you may choose to use a proxy for R when calculating B.

    question 6

    • The Wendy Johnson method (as well as the other count-based methods) are not discussed in great detail in Friedland and the exhibits at the end of the chapter don't provide any examples. For that reason, you need only learn the general concepts. Having said that, the 2:1 assumption for the cost of opening versus maintaining a claim is incorporated into the formula by way of summing over all the different types of claim activity. So for "opening" a claim you would have (estimated ULAE per claim activity) as double what it would be for "maintaining" a claim. The actual $-value for (estimated ULAE per claim activity) would have to be estimated by a separate study.


  • jj96gotthisjj96gotthis

    Hi Graham,

    For question 4 above, is it acceptable to use the ECR method instead of the BF method?

    I guess it shouldn't matter because the IBNR component will still be the same right?

    Thank you!

  • GrahamGraham

    I'm not sure using the ECR method is a good idea. If you use the ECR method, you'll get 140,085 for the ultimate instead of 153,562. Then the IBNER will be different so the final estimate of unpaid ULAE will be different also.

    Even though they didn't specify which method it use to calculate the ultimate, I think it would be safer to try to use all the information you're given. In this case you're given %-unreported, so you should use that. I think they might deduct 0.25 pts if you used the ECR method for the ultimate but did everything else correctly.

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