The 'How to allow xyz' & 'What reserving methods to use for xyz' Qs for SP7

Dear All

Hope you are well

I could be wrong, but after doing some past papers, I have noticed for these two types of questions, the solution includes a lot of marks for 'what to consider', which I don't see this being implied by the original question, so I want to confirm with you if in the exam I should always mention them to score high marks, please.

For example

2018 April, Question 9 iv)
The student actuary has been asked to carry out the reserve analysis for the nonproportional Property Treaty and Casualty Treaty business written.
(iv) Discuss the reserving methods and approach that she should consider (8 marks)

The solution has stated the type of methods, eg Chain Ladder, IELR method etc, but also give marks to the consideration when using these methods, eg tail factor, paid is more accurate than incurred data etc.
This makes sense because it is a discuss question so we want to show what to consider when using various reserving methods.

But , 2018 September, Q5 v)
Describe how the actuary should allow for the changes in claim processing approach when estimating the 31 December 2018 outstanding claim reserve.
(8 marks)

In this question, solution stated to adjust Chain Ladder method (this is the only method suggested!), which is fair as the past data no longer represent future.
But majority of marks (>90%) then is on 'where to find information for me to adjust the chain ladder' & ' what to consider when making adjustment'! eg ask claims staff, adjust differently based on claim types etc.

My query is:

• So when I am doing this question the first time, my first thought would be to suggest various methods to allow for the change, eg, 1 ignore the past data, 2 benchmark. 3 reduce my BE by a % etc, but I won't have written much on where to get data, and what to consider.
• Or, should I take the phrase 'allow for xyz' to imply that I should always talk about data and other considerations, in addition to the method suggested?
• and I should always write out what to consider when suggesting a reserving method to back up my suggestion.

Many thanks!
Best regards
Jun

 

Hi Jun

These two questions seem to be angled differently. The April question is discussing general reserving whilst the September question is about how you would allow for the changes in claim processing in your reserving. In September even if you proposed an alternative method you would still need to angle your answer towards how you allow for the changes in claims processing. I am therefore not sure you could get away with discussing alternative methods unless they allow for the changes.

The intro to the September question that tells us that the chain ladder was used previously is being told to us to understand that the chain ladder was a reliable method by itself without the need for other methods. This was a stable claims process in short.

Now what has happened here is that the settlement process is the one that has been affected by being made faster in a manner in control of the insurer but not previously captured in the claims data. In the very short term, there may be uncertainty but as discussed in the data chapter it is likely there were/are parallel runs so there must be some data to assess. I am therefore not inclined to think the uncertainty has increased requiring additional methods to be considered. It is also reasonable to expect the settlement process to settle making the chain ladder suitable.