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Sept 2019 Q 4 ii)

J

Jammy

Member
The solution to this question implies that:
- Credit insurance will be undeveloped after 5 years

Now, this may be true for an UWY cohort, as policies can be multi year (may be even > 5 years of cover)
However, if we are to consider the first accident year as the first cohort, then it might be a completely different story.

The solution does not condition on using UWY or AY cohorts. I am wondering why so?
Is it that credit is always sold on a claims made basis? or is always reserved using UWY cohorts?
Or is it that after specifying AY cohorts, we could have validly argued it to be fully run-off within 5 years?

Thanks in advance,
Jammy
 
The solution acknowledges that depending on the nature of the product it may be short or long tailed.

If you restricted yourself to considering accident year cohorts only then you were unlikely to come up with sufficient points based on the number of marks on offer. On these sorts questions, thinking about the implications of different reserving cohorts could therefore help you to come up with more ideas.

Also, recall that an accident year cohort will only estimate the reserves for events that have already happened. To estimate the reserves for business that is written but not yet earned (which can be very material for long term contracts such as some forms of credit insurance) you really need to consider an underwriting year cohort.
 
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