Hi, I'm am stuck at the step to convert the UY ULR to AY ULR in the last step of part ii. I've already tried averaging between the annual written premium in each UY and the BF ultimate claim amount (on the 50/50) and then recalculating the loss ratios but I don't seem to be getting anywhere. Could someone advise on this please? Thanks!
You're not the first to struggle with this one. Take a look here Sept 2017 Q7(ii) and here Sept 2017 Q7(ii).
Hi Katherine, I've went through the linked pages but still am unable to convert the UY ULR to AY ULR. My steps are as follows:- 1. Averaging between the annual written premium in each UY based on the assumptions (50/50) for 2016 and earlier and (75/25) for 2017. This should obtain earned premiums on an accident year basis 2. To get the ultimate claims on an accident year basis, I see that I need to apply percentages to the previous and current years' BF ultimate claims but am unsure how to obtain this percentages Would you be able to advise on where I'm going wrong in this question? Thanks and really appreciate your help on this!
Hi ACSBug As per the suggestion in the links above, the most efficient way to check what you're doing against the solution would be to look through ASET, which is still available for that year's papers. Order details on our website! Ian
Hi Ian, Is it possible that the examiner's report is wrong? For example for AY ULR, it states that it is 105% for 2017....up until 83% for 2012. Should this be the opposite way around? i.e 83% for 2017....up until 105% for 2012. Thanks and look forward to hearing from you.
This is a stonking question, so don’t lose heart, everyone will have had trouble with it! Have you bought the ASET? This goes through the calculations in detail. I would urge you to get it. I think it’s important that you work through this one fully, rather than relying on my answer. So here’s what I suggest: I’m going to give you a step-process to follow. See if you can follow it. First calculate the percentage developed at each development period, and interpolate this so that it applies to data as at June rather than December. Next use the BF method to estimate ultimate losses for each underwriting year. Now convert these underwriting year estimates to an accident year basis. This is a RAD contract, so you’ll need to think about how much of each underlying risk will be earned in each year: So for underlying risks written in January 2016 (at mid-January, say), how many “units” of risk will be earned in each month? (ie 0.5 units in Jan of 2016, 1 unit of risk in every other month of 2016, 0.5 units in Jan of 2017) Similarly, for underlying risks written in February 2016, how many units will be earned in each month of 2016 and in the first half of 2017? Repeat for each month of underwriting. (Note that I’ve described this on a monthly basis, using the 24ths method, which is what the ASET does. However, you get exactly the same answer by just considering business written in each half year, which is considerably less work!) Add up the total units of risk in each year (2012 – 2016), and in the 1st half of 2017. Convert these into percentages earned. Eg for the 1st half of 2017AY, 37.5% of 2016WP will be earned in 2017 1st half, and 12.5% of 2017WP will be earned in 2017 1st half. And for 2016 AY, 50% of 2015WP will earn in 2016, and 50% of 2016WP will earn in 2016. Apply these percentages to the underwriting year premium and BF ultimate claims, to get AY claims and EP. Calculate the AY loss ratios. In the end, there are lots of ways of tackling this question (although the examiners’ method, as I’ve described it above, seems the most intuitive to me). The examiners would award marks for any reasonable approach. For more practice at this sort of thing, I would also recommend you look at Subject 403, April 2004, Paper 2, Question 2. You can see my suggested solution for this at https://www.acted.co.uk/forums/inde...rom-underwriting-year-to-accident-year.12740/
