Spring 2015 8
Why can I use the unlimited severity trend factor (and not the limited one) when calculating net ultimate loss?
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Comments
There is no unlimited severity trend given so you couldn't apply that anyway. Also, the severity trend of 1.05 is only applied to the LAE portion. (The LAE portion is not subject to an excess loss factor, and would be nowhere near $500,000 for a single claim anyway.)
This may be a basic question, but do loss frequency and severity trends always (unless otherwise stated) apply to ALAE like they did in this question?
Yes, that's generally the case in these type of exam problems. I don't recall any exam problems where loss trends have been separated from LAE trends. If you were doing a stand-alone analysis of LAE then you might dig deeper into LAE trends but that is not something that would be required on the exam.