Spring 2016 Q14b)

jptardif2jptardif2
in CCIR.ARinstr

Hi Graham,

Coming back to the topic of investment income on unpaid claims. Based on the conversation we had under a different thread (Spring 2014 Q17/18), I knew the CAS only wanted the last 2 years of investment income on unpaid because parts a) and c) are asking about excess/deficiency ratio. But in reality, the real investment income on unpaid should also include the first year right? Say the questions a) and c) were about undiscounted/discounted loss ratios, would the answer to part b) be different?

Thanks,

Comments

  • grahamgraham

    First, thanks for bringing this question to my attention. The answer to part (b), while correct, is mislabeled in the examiner's report. The years for which they calculated the investment income are not 2013, 2014. The years they actually calculated were 2014 and 2015. So the solution is correct, just mislabeled.

    Back to your question: You are correct. If they had asked for the discounted loss ratio rather then the exess(deficiency) ratio, you would have needed the investment income for all 3 years: 2013, 2014, 2015.

    I will make a footnote to the BattleTable in the wiki about the mislabeling of the years in the examiner's report.

  • wilsonchan18wilsonchan18

    Hi I have one question here.

    Why that we do not need to calculate the 2013 Investment Income in this part b)? I suppose the yield should have earned some income on Avg(0, 1250).

    I understand when calculating other Excess Ratio we don't take into account first CY by definition (no claim is incurred from time 0 and we are not interested to see from time 0 but rather from time ). And anyhow if we really take APV=0, it will cause error since denominator is 0. Did I miss something? Thanks.

  • grahamgraham

    The solution in the examiner's report has errors in it, and there has been lots of discussion about this problem in the last few years. You are correct that AVG(0, 1250) should be included in the calculation of investment in part (b). The reason they didn't include it is that they wanted you to use part (b) to solve part (c). Strictly speaking, the examiner's report solution is wrong. In fact, here is a link to a forum discussion about exactly that in part (b):

    Here is a link to my own detailed solution for part(a):

    And here's a link to a forum discussion about part (c):

  • wilsonchan18wilsonchan18

    Thank you Graham. I just noticed that. :)

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