Basic Track IV

1CLRS Basic Track IV

Basic Track IV

Case Study

Handouts/Overheads

2002 CLRS

September 2002

Arlington, Virginia


Monstertruck MutualCommercial Automobile Liability

Incurred Losses ($000) at Accident Period Maturity in MonthsAccident

Year 12 24 36 48 60 72 841995 4,392 5,819 6,553 6,979 7,209 7,317 7,3321996 5,117 6,913 7,950 8,482 8,728 8,8331997 5,833 7,799 8,883 9,425 9,7071998 6,912 9,732 11,036 11,7541999 8,225 11,787 13,4842000 (a) 13,3672001 11,500

Incurred Loss Development Factors (LDF's)Accident

Year 12 - 24 24 - 36 36 - 48 48 - 60 60 - 72 72 - 84 84 - ULT1995 1.325 1.126 1.065 1.033 1.015 1.0021996 1.351 1.150 1.067 1.029 1.0121997 1.337 1.139 1.061 1.0301998 1.408 1.134 1.0651999 1.433 1.1442000 1.389

All Yr. Avg 1.374 1.139 1.065 1.031 1.014 1.002Latest 3 Yr Avg 1.410 1.139 1.064 1.031X High/Low 1.371 1.139 1.065 1.030Industry 1.398 1.141 1.063 1.032 1.016 1.001 1.013

Selected 1.410 1.139 1.064 1.031 1.014 1.002 1.013Age to Ult. 1.813 1.286 1.129 (b) 1.029 1.015 1.013

Incurred LDF Method

Incurred ProjectedAccident Loss (000) Age to Ult Ultimate

Year at 12/31/01 LDF Loss (000)1995 7,332 1.013 7,4271996 8,833 1.015 8,9661997 9,707 1.029 (c) 1998 11,754 1.061 12,4731999 13,484 1.129 15,2242000 13,367 1.286 17,1902001 11,500 1.813 20,852

Total 75,977 92,123



Paid Losses ($000) at Accident Period Maturity in MonthsAccident

Year 12 24 36 48 60 72 841995 1,713 3,758 5,239 6,328 6,657 6,837 6,9531996 2,042 4,387 6,256 7,551 7,959 8,2221997 2,223 4,933 6,940 8,467 8,9411998 2,589 6,044 (d) 10,6381999 3,043 7,487 10,8932000 3,368 7,9322001 4,370

Paid Loss Development Factors (LDF's)Accident

Year 12 - 24 24 - 36 36 - 48 48 - 60 60 - 72 72 - 84 84 - ULT1995 2.194 1.394 1.208 1.052 1.027 1.0171996 2.148 1.426 1.207 1.054 1.0331997 2.219 1.407 1.220 1.0561998 2.334 1.445 1.2181999 2.460 1.4552000 2.355


Selected 2.383 1.436 1.215 1.054 1.030 1.017 (e) Age to Ult. 4.903 2.057 1.433 1.179 1.119 1.086 (e)

Paid LDF Method

Paid ProjectedAccident Loss (000) Age to Ult Ultimate

Year at 12/31/01 LDF Loss (000)1995 6,953 1.068 7,4261996 8,222 1.086 8,9301997 8,941 1.119 10,0031998 10,638 1.179 12,5441999 (f) 1.433 15,6062000 7,932 2.057 16,3192001 4,370 4.903 21,424

Total 57,949 92,252


Monstertruck MutualCommercial Automobile LiabilityReported Counts and Averages Method

Reported Claim Counts at Accident Period Maturity in MonthsAccident

Year 12 24 36 48 60 72 841995 445 545 575 582 585 585 5851996 544 635 674 680 682 6821997 625 744 780 790 7911998 691 833 877 8831999 785 924 9722000 775 9402001 935

Reported Claim Count Development FactorsAccident

Year 12 - 24 24 - 36 36 - 48 48 - 60 60 - 72 72 - 84 84 - ULT1995 1.225 1.055 1.012 1.005 1.000 1.0001996 1.167 1.061 1.009 1.003 1.0001997 1.190 1.048 1.013 1.0011998 1.205 1.053 1.0071999 1.177 1.0522000 1.213

All Yr. Avg 1.196 1.054 1.010 1.003 1.000 1.000Latest 3 Yr Avg 1.198 1.051 1.010 1.003X High/Low 1.196 1.053 (g) 1.003

Selected 1.198 1.051 1.010 1.003 1.000 1.000 1.000Age to Ult. 1.276 1.065 1.013 1.003 1.000 1.000 1.000

Reported Claim Count Development Method

Reported ProjectedAccident Counts Age to Ult Ultimate

Year at 12/31/01 LDF Counts1995 585 1.000 5851996 682 1.000 6821997 791 1.000 7911998 883 1.003 8861999 972 1.013 9852000 940 1.065 1,0012001 935 (h) 1,193

Total 5,788 6,122


Monstertruck MutualCommercial Automobile LiabilityReported Counts and Averages Method

Average Incurred Loss at Accident Period Maturity in MonthsAccident

Year 12 24 36 48 60 72 841995 9,870 10,677 11,397 11,991 12,323 12,508 12,5331996 9,406 10,887 11,795 12,474 12,798 12,9521997 9,333 10,483 (i) 11,930 12,2721998 10,003 11,683 12,584 13,3111999 10,478 12,756 13,8722000 12,417 14,2202001 12,299

Average Incurred Loss Development FactorsAccident

Year 12 - 24 24 - 36 36 - 48 48 - 60 60 - 72 72 - 84 84 - ULT1995 1.082 1.067 1.052 1.028 1.015 1.0021996 1.157 1.083 1.058 1.026 1.0121997 1.123 1.086 1.048 1.0291998 1.168 1.077 1.0581999 1.217 1.0872000 1.145

All Yr. Avg 1.149 1.080 1.054 1.027 1.014 1.002Latest 3 Yr Avg 1.177 1.084 1.054 1.027X High/Low 1.148 1.082 1.055 1.028


Projected Projected ProjectedAverage Ultimate Ultimate Ultimate

Accident Inc'd Loss Age to Ult Average Claim LossesYear at 12/31/01 LDF Inc'd Loss Count ($000)1995 12,533 1.013 12,696 585 7,4271996 12,952 1.015 13,146 682 8,9661997 12,272 1.029 12,631 791 9,9911998 13,311 1.057 14,071 886 12,4621999 13,872 1.114 15,455 985 15,2182000 14,220 1.208 17,174 1,001 (j) 2001 12,299 1.421 17,483 1,193 20,850

Total 91,460 102,656 6,122 92,102



Bornhuetter-Ferguson (B-F) Method for Accident Years 2000 and 2001

Accident Earned Expected Expected IBNR Indicated Incurred UltimateYear Premium Loss Ratio Losses Factor IBNR Losses Losses2000 21,212 0.780 16,545 0.222 (l) 13,367 (m) 2001 26,383 0.780 (k) 0.449 9,230 11,500 20,730

Summary of Ultimate Loss Estimates ($000)

Projected Ultimate LossesReported

Incurred Paid Counts &Accident Earned LDF LDF Averages B-F

Year Premium Method Method Method Method Selected1995 10,460 7,427 7,426 7,427 7,4271996 13,185 8,966 8,930 8,966 8,9501997 15,603 9,991 10,003 9,991 10,0001998 17,803 12,473 12,544 12,462 12,5001999 20,845 15,224 15,606 15,218 15,3502000 21,212 17,190 (n) 17,188 17,047 17,0002001 26,383 20,852 21,424 20,850 20,730 (o)

Total 125,491 92,123 92,252 92,102 92,127

Projected Ultimate Loss RatiosReported

Incurred Paid Counts &Accident LDF LDF Averages

Year Method Method Method Selected1995 71% 71% 71% 71%1996 68% 68% 68% 68%1997 64% 64% 64% 64%1998 70% 70% 70% 70%1999 73% 75% 73% (p) 2000 81% 77% 81% 80%2001 79% 81% 79% 79%

Total 73% 74% 73% 73%


Monstertruck MutualCommercial Automobile LiabilityPaid DCC Ratio Development Method

Ratio of Paid DCC to Paid LossesAccident

Year 12 24 36 48 60 72 841995 17.09% 13.36% 13.50% 14.05% 14.40% 14.62% 14.72%1996 17.28% 13.55% 13.66% 14.13% 14.39% 14.62%1997 17.15% 13.51% 13.73% 14.33% 14.78%1998 17.66% 13.69% 13.88% 14.47%1999 18.13% (q) 14.37%2000 18.73% 14.40%2001 19.25%

Ratio of Paid DCC to Paid Losses Development FactorsAccident

Year 12 - 24 24 - 36 36 - 48 48 - 60 60 - 72 72 - 84 84 - ULT1995 0.782 1.010 1.041 1.025 1.015 1.0071996 0.784 1.008 1.034 1.018 1.0161997 0.788 1.016 1.044 1.0311998 0.775 1.014 1.0431999 0.783 1.0122000 0.769



ProjectedPaid DCC Ultimate

Accident Ratio Age to Ult DCCYear at 12/31/01 LDF Ratio1995 14.72% 1.010 14.87%1996 14.62% 1.017 14.87%1997 14.78% 1.033 15.27%1998 14.47% 1.059 15.33%1999 14.37% 1.102 15.83%2000 14.40% 1.117 16.08%2001 19.25% 0.867 (r)



AO Ratio Estimate

Paid PaidCalendar AO Loss AO

Year ($000) ($000) Ratio1999 537 10,131 5.30%2000 643 12,616 5.10%2001 785 15,098 (s)

Total 1,965 37,845 5.19%



Total Loss and Loss Adjustment Expenses Reserves ($000)Total

Projected Incurred Paid Case O/S Projected UnpaidAccident Ultimate Losses Losses Losses IBNR Losses Losses

Year Losses at 12/31/01 at 12/31/01 at 12/31/01 at 12/31/01 at 12/31/011995 7,427 7,332 6,953 (t) 95 4741996 8,950 8,833 8,222 611 117 7281997 10,000 9,707 8,941 766 293 1,0591998 12,500 11,754 10,638 1,116 746 1,8621999 15,350 13,484 10,893 2,591 1,866 4,4572000 17,000 13,367 7,932 5,435 (u) 9,0682001 20,900 11,500 4,370 7,130 9,400 16,530

Total 92,127 75,977 57,949 18,028 16,150 34,178

Projected ProjectedProjected Projected Paid Unpaid Estimated Unpaid

Accident Ultimate Ultimate DCC DCC AO AOYear DCC Ratio DCC at 12/31/01 at 12/31/01 Ratio at 12/31/011995 14.87% 1,104 1,023 81 5.2% 151996 14.87% 1,331 1,202 129 5.2% 221997 15.27% 1,527 1,321 206 5.2% 351998 15.33% 1,916 1,539 376 5.2% 681999 15.83% 2,430 1,565 864 5.2% 1642000 16.08% 2,734 1,142 1,592 5.2% (v) 2001 16.69% 3,487 841 2,646 5.2% 674

Total 14,529 8,635 5,894 1,309

Total Loss and Loss Adjustment Expense ReserveEstimated as of 12/31/01 41,381Recorded as of 12/31/01 40,905

Estimated Redundancy/(Deficiency): (w)


Basic Track IV

Case Study

Set II

Handouts/Overheads

2002 CLRS

September 2002

Arlington, Virginia


Monstertruck MutualCommercial Automobile Liability - Variant Case

Incurred Losses ($000) at Accident Period Maturity in MonthsAccident

Year 12 24 36 48 60 72 841995 4,392 5,819 6,553 6,979 7,209 7,317 7,3321996 5,117 6,913 7,950 8,399 8,728 9,0201997 5,833 7,799 8,883 9,339 9,8171998 6,912 9,732 11,036 12,0241999 8,225 11,787 14,0422000 8,980 14,1072001 13,181

Incurred Loss Development Factors (LDF's)Accident

Year 12 - 24 24 - 36 36 - 48 48 - 60 60 - 72 72 - 84 84 - ULT1995 1.325 1.126 1.065 1.033 1.015 1.0021996 1.351 1.150 1.056 1.039 1.0331997 1.337 1.139 1.051 1.0511998 1.408 1.134 1.0901999 1.433 1.1912000 1.571



Incurred LDF Method

Incurred ProjectedAccident Loss (000) Age to Ult Ultimate

Year at 12/31/01 LDF Loss (000)1995 7,332 1.013 7,4271996 9,020 1.015 9,1561997 9,817 1.039 10,2041998 12,024 1.082 13,0101999 14,042 1.153 16,1962000 14,107 1.332 18,7932001 13,181 1.960 25,830

Total 79,523 100,616



Paid Losses ($000) at Accident Period Maturity in MonthsAccident

Year 12 24 36 48 60 72 841995 1,713 3,758 5,239 6,328 6,657 6,837 6,9531996 2,042 4,387 6,256 7,551 7,959 8,2221997 2,223 4,933 6,940 8,467 8,9411998 2,589 6,044 8,734 10,6381999 3,043 7,487 10,8932000 3,368 7,9322001 4,370

Paid Loss Development Factors (LDF's)Accident

Year 12 - 24 24 - 36 36 - 48 48 - 60 60 - 72 72 - 84 84 - ULT1995 2.194 1.394 1.208 1.052 1.027 1.0171996 2.148 1.426 1.207 1.054 1.0331997 2.219 1.407 1.220 1.0561998 2.334 1.445 1.2181999 2.460 1.4552000 2.355



Paid LDF Method

Paid ProjectedAccident Loss (000) Age to Ult Ultimate

Year at 12/31/01 LDF Loss (000)1995 6,953 1.068 7,4261996 8,222 1.086 8,9301997 8,941 1.119 10,0031998 10,638 1.179 12,5441999 10,893 1.433 15,6062000 7,932 2.057 16,3192001 4,370 4.903 21,424

Total 57,949 92,252


Monstertruck MutualCommercial Automobile Liability - Variant CaseReported Counts and Averages Method

Reported Claim Counts at Accident Period Maturity in MonthsAccident

Year 12 24 36 48 60 72 841995 445 545 575 582 585 585 5851996 544 635 674 680 682 6821997 625 744 780 790 7911998 691 833 877 8831999 785 924 9722000 775 9402001 935

Reported Claim Count Development FactorsAccident

Year 12 - 24 24 - 36 36 - 48 48 - 60 60 - 72 72 - 84 84 - ULT1995 1.225 1.055 1.012 1.005 1.000 1.0001996 1.167 1.061 1.009 1.003 1.0001997 1.190 1.048 1.013 1.0011998 1.205 1.053 1.0071999 1.177 1.0522000 1.213



Reported Claim Count Development Method

Reported ProjectedAccident Counts Age to Ult Ultimate

Year at 12/31/01 LDF Counts1995 585 1.000 5851996 682 1.000 6821997 791 1.000 7911998 883 1.003 8861999 972 1.013 9852000 940 1.065 1,0012001 935 1.276 1,193

Total 5,788 6,122


Monstertruck MutualCommercial Automobile Liability - Variant CaseReported Counts and Averages Method

Average Incurred Loss at Accident Period Maturity in MonthsAccident

Year 12 24 36 48 60 72 841995 9,870 10,677 11,397 11,991 12,323 12,508 12,5331996 9,406 10,887 11,795 12,351 12,798 13,2261997 9,333 10,483 11,388 11,822 12,4111998 10,003 11,683 12,584 13,6171999 10,478 12,756 14,4472000 11,587 15,0072001 14,097

Average Incurred Loss Development FactorsAccident

Year 12 - 24 24 - 36 36 - 48 48 - 60 60 - 72 72 - 84 84 - ULT1995 1.082 1.067 1.052 1.028 1.015 1.0021996 1.157 1.083 1.047 1.036 1.0331997 1.123 1.086 1.038 1.0501998 1.168 1.077 1.0821999 1.217 1.1322000 1.295



Projected Projected ProjectedAverage Ultimate Ultimate Ultimate

Accident Inc'd Loss Age to Ult Average Claim LossesYear at 12/31/01 LDF Inc'd Loss Count ($000)1995 12,533 1.013 12,696 585 7,4271996 13,226 1.015 13,425 682 9,1561997 12,411 1.039 12,900 791 10,2041998 13,617 1.079 14,691 886 13,0111999 14,447 1.139 16,459 985 16,2072000 15,007 1.252 18,791 1,001 18,8062001 14,097 1.536 21,658 1,193 25,829

Total 95,339 110,619 6,122 100,640



Summary of Ultimate Loss Estimates ($000)

Projected Ultimate LossesReported

Incurred Paid Counts &Accident Earned LDF LDF Averages

Year Premium Method Method Method Selected1995 10,460 7,427 7,426 7,427 ?1996 13,185 9,156 8,930 9,156 ?1997 15,603 10,204 10,003 10,204 ?1998 17,803 13,010 12,544 13,011 ?1999 20,845 16,196 15,606 16,207 ?2000 21,212 18,793 16,319 18,806 ?2001 26,383 25,830 21,424 25,829 ?

Total 125,491 100,616 92,252 100,640 ?

Projected Ultimate Loss RatiosReported

Incurred Paid Counts &Accident LDF LDF Averages

Year Method Method Method Selected1995 71% 71% 71% ?1996 69% 68% 69% ?1997 65% 64% 65% ?1998 73% 70% 73% ?1999 78% 75% 78% ?2000 89% 77% 89% ?2001 98% 81% 98% ?

Total 80% 74% 80% ?


Questions or Discussion Based on the Variant Case

• In this example, the Reported Loss Development and the Reported Counts and Averages method produce higher ultimate loss estimates than the Paid Loss Development Method. What would you do in this situation:

a pick the average of the three as a compromise

b pick the highest answer to be more conservative

c pick the lower answer to appear more profitable

d investigate potential reasons for the difference in estimates

e change the assumptions so that the three methods produce equal results

• Do the historical reported loss and paid loss development patterns look consistent in this instance, or have the patterns changed?

• What changes did you notice? What are some possible explanations for them?

• How would you go about investigating the changes? Who would you talk to, and what additional data would you look at?

• How could changes in the following disciplines impact the data:

– Underwriting

– Claims

– Marketing

– Accounting

– Data Processing


Basic Track IV

Case Study

Set III

Handouts/Overheads

2002 CLRS

September 2002

Arlington, Virginia



Diagnostics - Cumulative Closed Claim CountsAccident

Year 12 24 36 48 60 72 841995 54 238 357 435 490 546 5681996 51 274 422 515 568 6351997 66 308 473 594 6751998 64 364 527 6471999 71 393 5892000 72 4032001 86

Cumulative Closed Claim Development FactorsAccident

Year 12 - 24 24 - 36 36 - 48 48 - 60 60 - 72 72 - 84 84 - ULT1995 4.407 1.500 1.218 1.126 1.114 1.0401996 5.373 1.540 1.220 1.103 1.1181997 4.667 1.536 1.256 1.1361998 5.688 1.448 1.2281999 5.535 1.4992000 5.597




Diagnostics - Open Claim CountsAccident

Year 12 24 36 48 60 72 841995 391 307 218 147 95 39 171996 493 361 252 165 114 471997 559 436 307 196 1161998 627 469 350 2361999 714 531 3832000 703 5372001 849

Open Claim Count Development FactorsAccident

Year 12 - 24 24 - 36 36 - 48 48 - 60 60 - 72 72 - 84 84 - ULT1995 0.785 0.710 0.674 0.646 0.411 0.4361996 0.732 0.698 0.655 0.691 0.4121997 0.780 0.704 0.638 0.5921998 0.748 0.746 0.6741999 0.744 0.7212000 0.764



Monstertruck MutualCommercial Automobile Liability - Variant CaseDiagnostics - Changes in Avg Incurred Losses per Reported Claim

Average Incurred Losses per Reported ClaimAccident

Year 12 24 36 48 60 72 841995 9,870 10,677 11,397 11,991 12,323 12,508 12,5331996 9,406 10,887 11,795 12,351 12,798 13,2261997 9,333 10,483 11,388 11,822 12,4111998 10,003 11,683 12,584 13,6171999 10,478 12,756 14,4472000 11,587 15,0072001 14,097

Percentage Change from Prior Accident YearAccident

Year 12 24 36 48 60 72 841996 -4.7% 2.0% 3.5% 3.0% 3.9% 5.7%1997 -0.8% -3.7% -3.4% -4.3% -3.0%1998 7.2% 11.5% 10.5% 15.2%1999 4.7% 9.2% 14.8%2000 10.6% 17.6%2001 21.7%


Monstertruck MutualCommercial Automobile Liability - Variant CaseDiagnostics - Changes in Average Paid Losses per Closed Claim

Average Paid Losses per Closed ClaimAccident

Year 12 24 36 48 60 72 841995 31,722 15,790 14,675 14,547 13,586 12,522 12,2411996 40,039 16,011 14,825 14,662 14,012 12,9481997 33,682 16,016 14,672 14,254 13,2461998 40,453 16,604 16,573 16,4421999 42,859 19,051 18,4942000 46,778 19,6822001 50,814


Year 12 24 36 48 60 72 841996 26.2% 1.4% 1.0% 0.8% 3.1% 3.4%1997 -15.9% 0.0% -1.0% -2.8% -5.5%1998 20.1% 3.7% 13.0% 15.3%1999 5.9% 14.7% 11.6%2000 9.1% 3.3%2001 8.6%


Monstertruck MutualCommercial Automobile Liability - Variant CaseDiagnostics - Changes in Average Case O/S Losses per Open Claim

Average Case O/S Losses per Open ClaimAccident

Year 12 24 36 48 60 72 841995 6,852 6,713 6,028 4,429 5,811 12,308 22,2941996 6,237 6,997 6,722 5,139 6,746 16,9791997 6,458 6,573 6,329 4,449 7,5521998 6,895 7,864 6,577 5,8731999 7,258 8,098 8,2222000 7,983 11,4992001 10,378


Year 12 24 36 48 60 72 841996 -9.0% 4.2% 11.5% 16.1% 16.1% 38.0%1997 3.5% -6.1% -5.8% -13.4% 12.0%1998 6.8% 19.6% 3.9% 32.0%1999 5.3% 3.0% 25.0%2000 10.0% 42.0%2001 30.0%


Monstertruck MutualCommercial Automobile Liability - Variant CaseDiagnostics - Ratio of Paid Losses to Incurred Losses

Ratio of Paid Losses to Incurred LossesAccident

Year 12 24 36 48 60 72 841995 0.390 0.646 0.799 0.907 0.923 0.934 0.9481996 0.399 0.635 0.787 0.899 0.912 0.9121997 0.381 0.633 0.781 0.907 0.9111998 0.375 0.621 0.791 0.8851999 0.370 0.635 0.7762000 0.375 0.5622001 0.332


Monstertruck MutualCommercial Automobile Liability - Variant CaseDiagnostics - Claim Count Reporting and Closing Patterns

Ratio of Reported Claim Counts to Ultimate Claim CountsAccident

Year 12 24 36 48 60 72 841995 0.761 0.932 0.983 0.995 1.000 1.000 1.0001996 0.798 0.931 0.988 0.997 1.000 1.0001997 0.790 0.941 0.986 0.999 1.0001998 0.780 0.941 0.990 0.9971999 0.797 0.938 0.9872000 0.774 0.9392001 0.784

Ratio of Closed Claim Counts to Ultimate Claim CountsAccident

Year 12 24 36 48 60 72 841995 0.092 0.407 0.610 0.744 0.838 0.933 0.9711996 0.075 0.402 0.619 0.755 0.833 0.9311997 0.083 0.389 0.598 0.751 0.8531998 0.072 0.411 0.595 0.7311999 0.072 0.399 0.5982000 0.072 0.4032001 0.072


Questions or Discussion based on the Diagnostics

• What does the additional diagnostic data tell you about the changes in the loss development patterns?

• After examining this additional data, how would you change the original methods and assumptions shown?


Basic Track IV

Case Study

Appendix

Handouts/Overheads

2002 CLRS

September 2002

Arlington, Virginia


Monstertruck MutualCommercial Automobile Liability - Variant CasePossible Solution #1 - Adjustment to Case O/S Losses for Changes in Case

Reserve Adequacy Using Average Case O/S Values

Average Case O/S LossAccident

Year 12 24 36 48 60 72 841995 6,852 6,713 6,028 4,429 5,811 12,308 22,2941996 6,237 6,997 6,722 5,139 6,746 16,9791997 6,458 6,573 6,329 4,449 7,5521998 6,895 7,864 6,577 5,8731999 7,258 8,098 8,2222000 7,983 11,4992001 10,378

Restated Average Case O/S Losses (Latest Diagonal Deflated using 9% Annual Trend Rate)Accident

Year 12 24 36 48 60 72 841995 6,188 7,474 5,825 4,535 6,356 15,577 22,2941996 6,745 8,146 6,349 4,943 6,928 16,9791997 7,352 8,879 6,920 5,388 7,5521998 8,014 9,679 7,543 5,8731999 8,735 10,550 8,2222000 9,521 11,4992001 10,378

e.g.: 9,679 = 11,499 / (1.090 2̂)

Restated Total Case O/S Loss (Adjusted Average Case O/S Loss x Number of Open Claims)Accident

Year 12 24 36 48 60 72 841995 2,420 2,294 1,270 667 604 607 3791996 3,325 2,941 1,600 816 790 7981997 4,110 3,871 2,125 1,056 8761998 5,025 4,539 2,640 1,3861999 6,237 5,602 3,1492000 6,693 6,1752001 8,811


Monstertruck MutualCommercial Automobile LiabilityPossible Solution #1 - Adjustment to Case O/S Losses for Changes in Case

Reserve Adequacy Using Average Case O/S Values

Restated Incurred Losses (Paid Losses + Restated Total Case O/S Losses)Accident

Year 12 24 36 48 60 72 841995 4,133 6,052 6,509 6,995 7,261 7,444 7,3321996 5,367 7,328 7,856 8,367 8,749 9,0201997 6,333 8,804 9,065 9,523 9,8171998 7,614 10,583 11,374 12,0241999 9,280 13,089 14,0422000 10,061 14,1072001 13,181

Restated Incurred Loss Development FactorsAccident

Year 12 - 24 24 - 36 36 - 48 48 - 60 60 - 72 72 - 84 84 - ULT1995 1.465 1.075 1.075 1.038 1.025 0.9851996 1.365 1.072 1.065 1.046 1.0311997 1.390 1.030 1.051 1.0311998 1.390 1.075 1.0571999 1.410 1.0732000 1.402



Restated ProjectedAccident Inc'd Losses Age to Ult Ultimate

Year at 12/31/01 LDF Loss (000)1995 7,332 1.013 7,4271996 9,020 1.013 9,1371997 9,817 1.041 10,2231998 12,024 1.081 12,9971999 14,042 1.144 16,0592000 14,107 1.211 17,0852001 13,181 1.697 22,365

Total 79,523 95,294


Monstertruck MutualCommercial Automobile Liability - Variant CasePossible Solution #2 - Adjustment to Incurred Losses for Changes in

Case Reserve Adequacy using Paid Loss to Incurred Loss Ratio

Incurred LossesAccident

Year 12 24 36 48 60 72 841995 4,392 5,819 6,553 6,979 7,209 7,317 7,3321996 5,117 6,913 7,950 8,399 8,728 9,0201997 5,833 7,799 8,883 9,339 9,8171998 6,912 9,732 11,036 12,0241999 8,225 11,787 14,0422000 8,980 14,1072001 13,181

Paid LossesAccident

Year 12 24 36 48 60 72 841995 1,713 3,758 5,239 6,328 6,657 6,837 6,9531996 2,042 4,387 6,256 7,551 7,959 8,2221997 2,223 4,933 6,940 8,467 8,9411998 2,589 6,044 8,734 10,6381999 3,043 7,487 10,8932000 3,368 7,9322001 4,370

Latest Diagonal Paid Loss To Incurred Loss RatioAccident

Year 12 24 36 48 60 72 841995 0.9481996 0.9121997 0.9111998 0.8851999 0.7762000 0.562 0.776 = 10,893 / 14,0422001 0.332

Restated Incurred Losses (Paid Losses/Latest Diagonal Paid Loss to Incurred Loss Ratio)Accident

Year 12 24 36 48 60 72 841995 5,167 6,684 6,754 7,152 7,309 7,501 7,3321996 6,159 7,802 8,065 8,535 8,739 9,0201997 6,705 8,773 8,946 9,570 9,8171998 7,809 10,749 11,259 12,0241999 9,178 13,316 14,0422000 10,159 14,1072001 13,181 8,946 = 6,940 /0 .776


Monstertruck MutualCommercial Automobile LiabilityPossible Solution #2 - Adjustment to Incurred Losses for Changes in

Case Reserve Adequacy using Paid Loss to Incurred Loss Ratio

Restated Incurred Losses (Paid Losses/Latest Diagonal Paid Loss to Incurred Loss Ratio)Accident

Year 12 24 36 48 60 72 841995 5,167 6,684 6,754 7,152 7,309 7,501 7,3321996 6,159 7,802 8,065 8,535 8,739 9,0201997 6,705 8,773 8,946 9,570 9,8171998 7,809 10,749 11,259 12,0241999 9,178 13,316 14,0422000 10,159 14,1072001 13,181

Restated Incurred Loss Development FactorsAccident

Year 12 - 24 24 - 36 36 - 48 48 - 60 60 - 72 72 - 84 84 - ULT1995 1.294 1.010 1.059 1.022 1.026 0.9781996 1.267 1.034 1.058 1.024 1.0321997 1.308 1.020 1.070 1.0261998 1.377 1.047 1.0681999 1.451 1.0552000 1.389



Restated ProjectedAccident Inc'd Losses Age to Ult Ultimate

Year at 12/31/01 LDF Loss (000)1995 7,332 1.013 7,4271996 9,020 1.013 9,1371997 9,817 1.042 10,2331998 12,024 1.067 12,8341999 14,042 1.137 15,9632000 14,107 1.183 16,6942001 13,181 1.663 21,915

Total 79,523 94,204


Basic Track IV

Case Study

Answer Key

Handouts/Overheads

2002 CLRS

September 2002

Arlington, Virginia


Answer Key

a 9,623 = 13,367 / 1.389

b 1.061 = 1.029 x 1.031

c 9,991 = 9,707 x 1.029 (Answer off slightly due to rounding)

d 8,734 = 10,638 / 1.218

or

= 6,044 x 1.445

e 1.068 industry tail factor has been selected

f 10,893 from triangle above

g 1.011 = (1.012 + 1.009) / 2

h 1.276 from "Age to Ult" line above, 12 months to ultimate

i 11,388 = 8,883 / 780 x 1,000

j 17,188 = 17,174 x 1,001 / 1,000 (Answer off slightly due to rounding)

k 20,579 = 26,383 x 0.780

l 3,680 = 16,545 x 0.222 (Answer off slightly due to rounding)

m 17,047 = 13,367 + 3,680

n 16,319 from projected ultimate losses using Paid LDF Method

o 20,900 selected based on judgment

p 74% = 15,350 / 20,845

q 14.2% = 14.37% / 1.012

or

= 18.13% x 0.783

r 16.7% = 19.25% x 0.867

s 5.2% = 785 / 15,098

t 379 = 7,332 - 6,953

u 3,633 = 17,000 - 13,367

v 330 = (5,435 / 2 + 3,633) x 0.052

w (476) = 40,905 - 41,381

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Basic Track IV