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  #1  
Old 09-22-2019, 11:59 PM
Kely Kely is offline
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Default STAM Sample Questions #321

Normally, earned premium is related with AY, not CY. But in this question, the solution treats earned premium in CY1 as in AY1. I think CY is each disgonal in the cumulative loss payment rectangle. Can anyone help me with that issue? Thanks!
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Old 10-02-2019, 08:11 PM
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gauchodelpaso gauchodelpaso is offline
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I believe you are correct. Reserves are normally calculated by AY. The examples in Brown's text do BF for a given AY and use Earned Premiums and ELRs by AY. It's odd that the official solution and a couple more I've seen disregard completely the notion and use earned premium for CY as it were for AY. It may just be another approximation, as it's the only data available. Or perhaps some of the rules used for workmen's compensation. Or something very basic we are missing.

Let's say we have 1 year single policy written on 1/1/2015. Total premium $1200. By the end of 2015 the premium will be fully earned So EP(2015)=1200. We report an accident occurred on 7/1/2015. I may have a claim of 250 in each 2015, 150 in 2016, and 50 in 2017. Let's say that ELR is 60%. Using the Loss Ratio Method, I would estimate the total losses at 1200*0.6 = 720, of which I paid 450. So my reserves would be 720-450=270. Notice that I used the earned premium for CY2015.

Now if the policy was written on 4/1/2015, by the end of 2015 the EP'(2015)=900, and the results would be different.

Hopefully one of the gurus here may clarify the point.
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Old 10-02-2019, 08:30 PM
Abraham Weishaus Abraham Weishaus is offline
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There is no such thing as premium by AY. AY is only for accidents. Loss payments are categorized based on the year of the underlying accident. They may also be categorized by calendar year, but this is useful only for creating loss triangles - and then they would be classified both by calendar year and by accident year.


A premium, on the other hand, is not directly related to any accident, so it wouldn't make any sense to talk about the accident year of a premium. Many policies have no accidents at all.



Losses in AYx are compared to earned premiums in CYx. A loss in AYx relates to an accident that occurred in CYx, and that accident was on a policy that was in force at the time of the accident, and the premiums earned in CYx are what made the policy in force and the insurance company liable to pay for the accident.

Last edited by Abraham Weishaus; 10-03-2019 at 10:29 AM..
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Old 10-02-2019, 10:39 PM
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gauchodelpaso gauchodelpaso is offline
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Thank you Dr Weishaus.

For some strange reason I thought that for each accident we had to see how much of the premium was earned, but then, as time passes, I could see that eventually the premium would be fully earned.

So if understand this right, we don't need to correlate the claims to each policy at all. We dump in a big bucket all the earned premiums for that year (and the corresponding ELR), and in another bucket the calculation for the ultimate losses for each AY corresponding to each CY. IBNR reserve in this case for BF for each AY is Ultimate losses * (1-1/fult).
What is confusing is that the answer in the exam labeled each year as CY instead of AY.
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Old 10-04-2019, 10:56 AM
JZSportswhiz JZSportswhiz is offline
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Where were you able to find the SOA solutions for questions 307 thru 329? For some reason everytime I click it thru the SOA site it only goes up to #307
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Old 10-04-2019, 12:58 PM
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JZSportswhiz I've got them there, perhaps your cookies may be acting up? Look in the syllabus

https://www.soa.org/globalassets/ass...-solutions.pdf

BTW they are numbered up to 328, not 329
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Last edited by gauchodelpaso; 10-04-2019 at 01:03 PM..
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Old 10-04-2019, 03:28 PM
JZSportswhiz JZSportswhiz is offline
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Quote:
Originally Posted by gauchodelpaso View Post
JZSportswhiz I've got them there, perhaps your cookies may be acting up? Look in the syllabus

https://www.soa.org/globalassets/ass...-solutions.pdf

BTW they are numbered up to 328, not 329
Ya that is very strange. This worked tho! Thanks a bunch!
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Old 10-04-2019, 03:52 PM
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Quote:
Originally Posted by JZSportswhiz View Post
Ya that is very strange. This worked tho! Thanks a bunch!
you are quite welcome
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