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April06

T

TiredOfExams

Member
Hi,

I need some help with Q2 part (v) of April 06 paper:

a) How do we know that the paid loss ratios are Accident Year loss ratios (e.g. they could be financial years) ?
b) Same question for the market loss ratio of 20%
c) Solution says that the o/s claims reserve is 80% of 2m. Shouldn't it be 2/1.2?
d) Solution suggests that the ULR should include claims expenses (why?), but didn't we exclude them explicitly when we did the 80% of 2m calculation?

Thanks
 
a) We don't - although it would be reasonable to assume they are, given that they are shown as a percentage of earned premium.

b) Only one market loss ratio given, so easiest to assume it applies throughout.

c) Total is 2m, of which 20% are CHE, so reserves 80%, ie 1.6m - sounds ok to me - but let's face it, it's all approximations and wouldn't make a big impact if you did it your way either.

d) Solution says "it's not clear..." about expenses. So basically, as long as you made reasonable assumptions and acted on them, you'd have scored well.

Don't get too bogged down in the calculations for this part of the question. They are very "finger in the air". It's more important that you have some sort of reasonable approach to an approximate figure.
 
Silly question; how do we then show that 1.6m is 14.2% of earned premium?
 
Hi Jensen,

For 2005, the earned premium is £11.3m.
We've calculated the claims element of the £2m reserve to be £1.6m (ie 80%). So claims divided by premiums gives 1.6/11.3 = 14.16%. This is the % that the claims reserve is of the earned premium.

Coralie
 
Last edited by a moderator:
Should this 2m reserve relate to all prior years or just 2015? The solution expresses it only as 2015 Loss ratio, but if I was attempting I would have said that this 2m is to cover 2003&2004, or is there an obvious reason why we wouldn't do this?
Thanks
 
This is an accident year loss ratio for the year 2005 (note the question talks about earned premium). However, business is earned from policies written in years 2003, 2004 or 2005.
 
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