Fall 2013 Q15 c) & d)
What is the difference between question c) and d)? In the solutions it says that in d) many candidates did not get full credit as they simply restated their reasons from c) and or that answers were not "logical". Personally, c) and d) seem like they are asking the same thing/could have the same answer. Thank you.
Comments
The answer to this question will likely make more sense once you've covered later chapters in the reserving text, so make a note of this exam problem and make sure to come back to it when you review the reserving material.
In any case, this was not a great exam question because as you said, parts (c) and (d) are quite similar although no exactly the same. The key difference is that in part (c), they asked about unpaid claims estimates for:
whereas in part (d) they asked about unpaid claims estimates for
And the companies were combined on Dec 31, 2012 so that's when they would have adopted Company A's claims practices for the combined Company C. This represents a CHANGE in how Company B's data is collected starting Dec 31, 2012.
Some of the reasons from part (c) might actually be valid but what they wanted was for you to focus on the effects of the adoption of Company A's reserving practices for the combined company. This would have no effect on Company A, but it could potentially distort the data for Company B. So the acceptable answer here is that combining the data from A and B would make sense only if Company B's data for 2012 and prior were adjusted as if Company B had ALWAYS been using Company A's claims practices. And this idea of adjusting historical data to remove distortions is discussed in much more detail in chapter 13 on the Berquist-Sherman method.