Hi The assumptions in the solutions are different to those on the summary page in the Acted notes, they are more reflective of the actual question, rather than theoretical. Should I try to write assumptions as in the solutions, or are the bookwork assumptions acceptable? Also, in the solutions they say the estimated loss ratio need to be correct for all other years, but since we are only calculating for year 2014, this seems an unnecessary assumption? Am I correct? Thank you, Rachael
Hi The only specific item in the assumptions is that there are three development years. Can't imagine that the generic assumption of claims being fully run off wouldn't be worth the same number of marks. The assumption about the appropriateness of the loss ratio applies to the 2014 policy year, but that payment of 2,125 will need to be projected across all development years. So it is necessary in that respect.
I am still not sure I understand this because to calculate the development factors we have not used the assumed loss ratio for any other year, so why is the assumption still needed? Thank you
The assumption isn't used to calculate the development factors. The loss ratio is used to estimate the ultimate loss, ie the amount that will need to be paid in total across all of the future years. Such a statement is only valid if the loss ratio value of assumed to be appropriate.
