Part6: Johnson's Exhibit 6

[Roasted Almond]

Page123:

The ratio used in estimating ULAE reserve by classical method is
0.198 = 892,590/4,501,379

whereas, the All-10's Sample Questions on Kittel's Classical method finds the ULAE reserve by using the "average of the paid-to-paid ratios" i-e the ratio that must be used in Classical method (according to All-10) is 0.2233

Can anyone clarify the above?

Thanks for your time.

[blackjack]

Johnson paper = right, ALL10 = wrong. This is simply a mistake by ALL10. If asked this question on a test, the grader (and question writer) will assume Johnson's approach, as they will most likely copy the exhibit from the paper and update the years and figures.

[Wigmeister General]

Good catch.

[Roasted Almond]

Johnson paper = right, ALL10 = wrong. This is simply a mistake by ALL10. If asked this question on a test, the grader (and question writer) will assume Johnson's approach, as they will most likely copy the exhibit from the paper and update the years and figures.


Kittel's Paper, Page 317, 4th line from above:

"An Average paid expense to paid loss ratio for several years or, if stable, the ratio for the current year is calculated"

Am I misinterpreting the above statement? what is meant by "Average" above?

[Roasted Almond]

Blackjack, I think you didn't get my point.

See Solution of Q55,1995 Exam for Johnson's Paper in either CSM or All-10. The ratio used for calculation of ULAE reserves (by both CSM and All-10) is the SIMPLE AVG of paid-to-piad ratios.

Now see the calculation in Johnson's Exhibit6, Page123. She uses the ratio of TOTAL CYr.Paid ULAE to TOTAL CYr.Paid Losses.

What the heck? :x

[blackjack]

RA - From what I see, this problem doesn't mention/require using Johnson in the solution. Although this is a Johnson type problem, the actual question does not require you to use her techniques (ie. approach to averaging). Although this is a 1995 question, this appears to be the new approach the CAS is using in writing questions. The question does not give you the author to use, you just have to know the approach and be able to state your assumptions. I believe they are doing this b/c they were getting called (ie. appeals) on questions similar to this where you could use a simple average, a weighted average, a 3 year average, etc. There is no one right answer. Again, in the test, I would simply pick a path and state for example "I used a weighted average similar to Johnson's approach". This way, you have answered the question correctly, according to Johnson. End result = full credit for Roasted Almond!

Hope that helps.