Hi, I am currently calculating the investment income on TPs for the revenue account in part is). I understand all calculations in the solutions except why the large claims earned in the year are multiplied by 25%. Is this an assumption, that we pay 75% of the large claims incurred in the year in that year? I can't see it in the assumptions list in the question so was just wondering where this comes from. Thanks!
Since the loss ratio is 65% and paid claims are 40% of earned premiums, the OCR will be 65-40=25% of earned premiums.
To my understanding, incurred claims = paid claims + increase in OCR. In this case, isn't 25% of earned premiums = increase in OCR?
Yes that's correct. Recall: Claims Incurred = Claims Paid + (OCR c/f - OCR b/f) But as you state OCR b/f (ie at the start of 2009)=0.
