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Digweed
04-13-2010, 09:38 AM
I am confused about calculation the PV of payments for unpaid claim liability. My initial understanding was that PV = Gross Ultimate Loss * % Paid * Discount factor * (1 - % Ceded)

But, on 2004 #56: PV = (Gross Ultimate - Paid Loss ) * % Paid * Discount Factor * (1 - % Ceded).

Is there something special about the 2004 question that I am missing?

intelmic
04-13-2010, 01:39 PM
I am confused about calculation the PV of payments for unpaid claim liability. My initial understanding was that PV = Gross Ultimate Loss * % Paid * Discount factor * (1 - % Ceded)

But, on 2004 #56: PV = (Gross Ultimate - Paid Loss ) * % Paid * Discount Factor * (1 - % Ceded).

Is there something special about the 2004 question that I am missing?

The difference is in the %Paid.

The solution states this:
Paid in 2004 for AY 03 = (60% - 20%)/(100% - 20%) x (Ult - Paid)
= 3500

Paid in 2004 for AY 03 = (60% - 20%) x (Ult)
= 3600

See the difference?

Dividing by 100%-20% makes you take the unpaid and start fresh from this point and deriving the remaining payments per period.

You can see that the Paid % are not consistent with the data.
In fact, the AY2003 paid @ 12mth is 2,000\$ which is not 20% x 9,000 = 1,800
Edit: Your solution would workout to be the same if the AY2003 paid @ 12mth would be 1,800

Both answers are reasonable IMO, but the CAS solution uses the "most recent" data available which is preferable.

Hope this helps.

Digweed
04-13-2010, 01:56 PM
The difference is in the %Paid.

The solution states this:
Paid in 2004 for AY 03 = (60% - 20%)/(100% - 20%) x (Ult - Paid)
= 3500

Paid in 2004 for AY 03 = (60% - 20%) x (Ult)
= 3600

See the difference?

Dividing by 100%-20% makes you take the unpaid and start fresh from this point and deriving the remaining payments per period.

You can see that the Paid % are not consistent with the data.
In fact, the AY2003 paid @ 12mth is 2,000\$ which is not 20% x 9,000 = 1,800
Edit: Your solution would workout to be the same if the AY2003 paid @ 12mth would be 1,800

Both answers are reasonable IMO, but the CAS solution uses the "most recent" data available which is preferable.

Hope this helps.

Good catch there, thanks!