2017 Spring 19
For part (a), I used the expected emergence formula given in chapter 15, but it appears that none of the sample answers used that formula. My solution is using current AY 2016 IBNR*(%reported at 48months - %reported at 36 months)/(1-%reported current). Can you please explain if this is correct and also how would I know whether to use this formula or the sample answer approach? Thanks.
Comments
The calculations in the sample answers are equivalent to the emergence formula. I applied the emergence formula just to check and I got the same answer.
The reason they didn't apply the emergence formula directly is that you aren't directly given the information you need to substitute into the emergence formula. You have to calculate those quantities using the development method. But once you've done that, all you have to do is subtract the cumulative reported @36 months from the cumulative reported @48 months.
Again, what they did in the sample answer is essentially what you have to do to get the quantities you need for substituting into the emergence formula. (If you sit in a dark room and ponder this, you'll see that both methods are really the same even though they might not seem to be at first glance.)