QA Bank 3.2

[jensen]

Hi

For part ii, could we actually reason out the answers without having to recalculate the reserves because I don't get the reasoning in the solutions provided?

Thanks

 

[Katherine Young]

Hello Jensen,

The solution in the Course Notes does indeed argue its case without recalculating the reserves.

I quite like your spreadsheet, but I think you should also try to understand the solution given in the Course Notes. It's important to be able to do this in order to understand the sorts of factors that can distort a chain ladder analysis.

Perhaps if you can be more specific as to which parts of the solution you're struggling with, I can try to help.

Kind regards,

Katherine.

 

[jensen]

Hi Katherine

What about (b) where there is something about '20', '60' and '80ish; how do we estimate these?

 

[Katherine Young]

Hi Jensen,

The 2007/3 figure (ie the top right of the triangle) has increased by 20. Therefore (assuming that later origin years reach a similar cumulative figure by the end of development year 2), the estimated claims for the later years will also increase by about 20 in development year 3. This is the "extra 20 or a little more" that is described in our solution.

In fact, the 2007 accident year is showing rather lighter claims experience than later years, ie the new (higher) development factor is being applied to larger claims amounts for the later years, so the projected figures will increase by rather more than 20 for each accident year.

For the three later accident years (2008 - 2010), an increase of "rather more than 20" each year gives the "extra 60 plus" that is described in our solution.

The question however is asking us to give the percentage increase in total reserve. So we need to divide this "extra 60 plus" by the original reserve estimate of "180ish", as stated in our solution.

I've described this in a very step-by-step way in the hope that it'll make more sense to you. Let me know

Kind regards,

Katherine.