Hi,
The examiners answer to this question was actually not very satisfactory to me and I wondered if the tutors and students on this forum can help me and verify my approach to the problem.
The question gives a cumulative paid and notified triangle with 5 development years for a household insurance LoB of a mid sized insurer. Part 1 asks about the reasonableness of the development patterns and is a fairly straightforward question.
part 2 of the question states:
"Discuss how the ultimate claim cost estimated by the Basic Chain Ladder method would be affected if during 2000 there had been a major hurricane that had caused the paid losses in underwriting year 2000 to be 50 instead of 11 and the notified losses to be 100 instead of 46."
However, the examiner's answer only briefly touches upon the actual impact of the hurricane on the BCL method and goes on to discuss topics that are (in my humble opinion) not relevant to the actual answer.
The way I see it, it comes down to the following points:
1.The hurricane happened in 2000. This means that UW year 1999 and UW year 2000 policies would be affected, assuming we are dealing with 1year policies
2. The fact that UW 1999 shows only a small spike in notified claims and paid claims in development period 1 suggests that the hurricane took place towards the end of 2000 (if it had taken place at the beginning, there would be more 1999 policies in force, which would mean a greater spike in dev period 1 for UW 1999 cohort)
3. Thus, we can say that the impact of the 2000 hurricane will only majorly affect the UW2000 cohort
4. Since this is the latest development period for the triangle, this would not be captured in the ultimate calculations while using the BCL method (since the BCL method ignores the latest cohort in its CDF calculations)
5. Thus, the overall calculations would be unchanged if the same BCL was used, without making any allowance for large and catastrophe claims
6. I would make a recommendation to split cat claims separately and create a separate cat reserve to make the reserve calculation accurate
Is my answer right here? The answer key speaks about payment patterns of hurricane claims, which I believe is very tenuous and not at all in line with what the question is asking.
@Ian Senator your inputs would be greatly appreciated
The examiners answer to this question was actually not very satisfactory to me and I wondered if the tutors and students on this forum can help me and verify my approach to the problem.
The question gives a cumulative paid and notified triangle with 5 development years for a household insurance LoB of a mid sized insurer. Part 1 asks about the reasonableness of the development patterns and is a fairly straightforward question.
part 2 of the question states:
"Discuss how the ultimate claim cost estimated by the Basic Chain Ladder method would be affected if during 2000 there had been a major hurricane that had caused the paid losses in underwriting year 2000 to be 50 instead of 11 and the notified losses to be 100 instead of 46."
However, the examiner's answer only briefly touches upon the actual impact of the hurricane on the BCL method and goes on to discuss topics that are (in my humble opinion) not relevant to the actual answer.
The way I see it, it comes down to the following points:
1.The hurricane happened in 2000. This means that UW year 1999 and UW year 2000 policies would be affected, assuming we are dealing with 1year policies
2. The fact that UW 1999 shows only a small spike in notified claims and paid claims in development period 1 suggests that the hurricane took place towards the end of 2000 (if it had taken place at the beginning, there would be more 1999 policies in force, which would mean a greater spike in dev period 1 for UW 1999 cohort)
3. Thus, we can say that the impact of the 2000 hurricane will only majorly affect the UW2000 cohort
4. Since this is the latest development period for the triangle, this would not be captured in the ultimate calculations while using the BCL method (since the BCL method ignores the latest cohort in its CDF calculations)
5. Thus, the overall calculations would be unchanged if the same BCL was used, without making any allowance for large and catastrophe claims
6. I would make a recommendation to split cat claims separately and create a separate cat reserve to make the reserve calculation accurate
Is my answer right here? The answer key speaks about payment patterns of hurricane claims, which I believe is very tenuous and not at all in line with what the question is asking.
@Ian Senator your inputs would be greatly appreciated
