19 b

[Becoming An Actuary]

19 b) Why is it appropriate to index the deductible for inflation? (1mark)
--------

I answered this question from general reasoning, rather than a specific reason outlined in Siewert (I think my answer was actually based on Clark's reasoning). I would assume ANY (correct) reason would be accepted, since there is no specific reference to Siewert in this question (ie. "Based on Siewert, answer the following..."), although part (a) particularly alludes to the Siewert paper no such reference is made in part (b).

My beef is that what seems to be the (model) answer to the question is buried away in some paragraph, with no intended emphasis on the particular sentence : "it is also appropriate to apply an indexed limit to the claims in order to determine a series of accident year loss development histories by limit" (p 224 last paragraph).

Anyhow, do you think they will allow for answers other than that cited above? Do you think it's necessary to write to them?

[Utopial]

wat was ur answer? isn't siewert's explanation is a rewording of a general explanation anyway - ie index so all limits are comparable?

[Becoming An Actuary]

my reply went something like this:

as inflation causes claims costs to rise, policyholders would desire deductible and policy limits to rise in line with this inflation; thereby providing the same protection they received before the inflation of these costs.

not sure how many marks, if any, i would receive for this

[Utopial]

mm im not sure

siewert said something about using indexing so as to keep the level of XS losses the same/comparable for each yr. what you're saying is right, but maybe they also require a mention of that.
id say u should at least get 1/2 a mark...

we'll never know. depends how tight their marking is. u reckon they mark more tightly the questions everyone has a decent idea on, and less tightly for questions that everyone screws up?

im worried about part c of that question.
my 2 ads of implied over direct:
1. ldfs arent leveraged like xsldfs
2. implied is easier since u dont have to estimate severities, relativities, xsldfs etc

i reckon ill get booted on the 2nd one. the 2nd one they woulda been looking for is that implied can estimate XS reserves even when none have emerged, unlike direct...

[The Sad Man]

I thought this was a pretty obvious question but almost so obvious you struggle for words to explain yourself. I think I put that basically you cannot equate a 100k retention from 1990 with one from 2005 because do to inflation they're not equal. To get them on an apples to apples basis you need to adjust for inflation or else the XS losses will not be based on equivalent retentions. I don't know how else to explain it.

[Becoming An Actuary]

siewert said something about using indexing so as to keep the level of XS losses the same/comparable for each yr.


ah yes, i remember that now. i hope they accept any correct reason, since in part b) it did not specify a particular article from which to answer.....we'll never know


im worried about part c of that question.
my 2 ads of implied over direct:
1. ldfs arent leveraged like xsldfs
2. implied is easier since u dont have to estimate severities, relativities, xsldfs etc

i reckon ill get booted on the 2nd one. the 2nd one they woulda been looking for is that implied can estimate XS reserves even when none have emerged, unlike direct...


the first one is definitely right (i think siewert said "more stable", but i think what you said is the same). the second one is true i guess, but is not something on his list. but i think the reference to "implied development method" and "direct development method" allude indirectly to his article. i say you definitely get 1/2, beyond that is upto the graders.......we'll never know