Discounted Loss Ratio (Spring 2018 Q 15)

chrisboersmachrisboersma
in CIA.MfAD

as well as calculate loss ratios in accordance to the Unpaid Claim and Loss Ratio Analysis Exhibit instructions.

I realize the formula is pretty straightforward: (claims - interest (claims)) / (premium + interest(premium))

But, where is this in the instructions?

There are instructions for discounted incurred losses:
Claims Ratio by Year of Accident
**Incurred claims** Equals Amounts paid during year (page 60.41) Minus Investment income from UCAE and IBNR for the accident year, from the beginning of the accident year up to the end of the current year (page 60.41) Plus Unpaid claims for that accident year at the end of the current year (page 60.41)

It says this about earned premiums (which suggests this value should be a given):

Accident year net premiums earned are taken from the appropriate column of page 10.60,

There is no reference on how to calculate "net premiums earned".

Where are the instructions for this in the source material?

Comments

  • grahamgraham

    This is buried in the reading OSFI Memorandum on p28. (In the wiki, this reading is labeled as OSFI.MemoAA)

    I've now made a note of this in the wiki in both the CIA.MfAD reading and the OSFI.MemoAA reading.

  • chrisboersmachrisboersma

    its like where's waldo. Thanks for digging to find that.

  • grahamgraham

    LOL!!!!!

  • nextsocietynextsociety

    I have a question regarding the investment income from UCAE part of this question.
    In the sample answer 1, the investment income during CY2017 only is subtracted in calculating the discounted loss ratio.
    In the sample answer 2, the investment income during prior CYs are all added together (i.e. cumulative investment income).
    Which way is the correct way?

    I also note that in Spring 2015 Q25, in calculating A and E, the cumulative investment income is used. Not just the latest calendar year investment income.

  • javidjavid

    Hi @nextsociety ,

    Linking the question here: https://www.battleactsmain.ca/pdf/Exam_(2018_1-Spring)/(2018_1-Spring)_(15).pdf.

    With respect to part b), there's actually a typo in sample 1: the last line reads
    Discounted LR = (137,630 + (1,855 + 2,997 + 2,036 + 1,520.7))/(210,000 + 120,000 – 130,000 + 3,750) = 63.4%
    It should be
    Discounted LR = (137,630 - (1,855 + 2,997 + 2,036 + 1,520.7))/(210,000 + 120,000 – 130,000 + 3,750) = 63.4% (changed the + sign in the numerator to a - sign)

    With that said, they are mathematically equivalent. In sample 1, you see them doing 1,855 + 2,997 + 2,036 + 1,520.7 in the numerator. Well, this is actually equal to the 8709 that was calculated separately in sample 2. :) So at the end of the day, they are both looking at a cumulative investment income.

    The main difference between samples 1 and 2 is how they move from the undiscounted to the discounted LR.
    1. In sample 1: They take the numerator of the undiscounted and adjust it to get the numerator of the discounted LR
    2. In sample 2: They just seem to re-do the calculation using the triangles. (Personally, I find this one clearer because you see more clearly the inputs into the calculation)

  • nextsocietynextsociety

    Thank you so much for the clarification!

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