2016.Spring #14a - Undiscounted Excess/Deficiency Amount Explanation - Change in the Ult (shortcut)
Hi,
Here is the explanation to use the change in the ultimate to calculate the Undis. Excess/Deficiency Amt.
Formula = (Res (beg) - Cum Paid (except @ 12) - Res (End))/Res (beg)
Cum Ult Inc @ 12 = Res @ 12 + Paid @ 12
Res @ 12 = Res (beg)
Cum Ult Inc = Cum Paid + Res (End)
Diff Cum Ult Inc @ 12 and Cum Ult Inc = Res (Beg) + Paid @ 12- (Cum Paid + Res (End)) =
Res (Beg) - Cum Paid + Paid @ 12 - Res (End)
Cum Paid - Paid at age Paid = Cum Paid (except @ 12)
To solve the problem quickly we can use:
Excess/Deficiency Amt = (Ult End - Ult @ 12)/(Ult @ 12 - Paid @ 12)
Comments
Hi genevieve,
Thank you for posting this. I think we may need to negate the numerator of your final formula but I will get back to you by end of day.
Hi genevieve,
I would write it as: (reversing the order in the numerator)
Excess/Deficiency Amt = (Ult @ 12 - Ult End)/(Ult @ 12 - Paid @ 12)
Intuitively, if the ultimate as of 12 months is greater than the ultimate at the end, then we will have an excess/positive amount (which is in agreement with the formula above... it will be positive if this is the case).
Ult @ 12- Ult @ end, you are right...a typo from my part. The goal of calculating excess and deficiency is to determine our ability to estimate the remaining amount to be paid which represents (paid + new reserve estimate until the losses are closed). Of course, we are going to take a younger estimate and subtract an older one. Good catch
Hi,
The examiner's report gives two different answers to that question:
Are these 2 interpretations of the examiners' report correct?
Thanks!
Here's a link to a wiki page that discusses the solution. But basically my advice is to ignore the second solution. The first solution with the answer of 25% is the one I think they intended for you to do.
Ignoring the second solution then.
Thanks!