Fall 2019 part a

thesuperactuarythesuperactuary
in CIA.MfAD

In the Battle quiz/template calculation), the ceded unpaid amount was showed to discount back at i%; (AKA. CU(@i)($) Ceded UCAE & IBNR, discounted at i% (PV or Present Value of CU))

However, in CAS solution part a, it seems like they take the discounted loss (gross) times for net % to get NET discount loss directly (without accounting for discount values/or %paid of ceded unpaid claims). Could someone shred some lights on which method is correct?

Thank you

Comments

  • Staff-T1Staff-T1

    Hello,

    Are you referring to question 15a) in the Fall 2019 paper?

  • thesuperactuarythesuperactuary

    Yes

  • Staff-T1Staff-T1
    edited January 2022

    Hi,

    Remember that this is a quota share policy. Given that you have the % of sharing, you can easily swap between undiscounted net, gross and ceded unpaid amount.
    Now, back to the question specifically.
    The CAS uses the Gross APV and various MFADs to back out the Undiscounted Gross Unpaid Claims.
    Then, the quota share % is applied to the Undiscounted Gross Unpaid claims to get the Undiscounted Net Unpaid Claims.
    In the template, we are trying to get the actuarial present value of the ceded unpaid.
    Here, we are trying to get the undiscounted net unpaid.

  • CalendarYrCalendarYr

    Hi! I still don't understand why MfAD(re) is being ignored here in the solution:
    APV(NU)= NU(@i') + MfAD(clms) x NU(@i) + MfAD(re) x CU(@i)
    basically L = NU(@i)+CU(@i) if I understand it correctly. In that case, we should do:

    APV(UCLG) = 120,000 = 0.9781(L/1.3) + 0.9738(L/1.3 * 10%+L/1.30.3*0.01)

    right?

  • Staff-T1Staff-T1
    edited February 2022

    Couple of things here:

    • L in your definition is the gross unpaid discounted @ 3%
    • To get your quota share percentage you should always multiply by 0.7 rather than divide by 1.3
    • Your first term, 0.9781(L/1.3) -> You are trying to get the net discounted with interest rate PFAD. I am confused here because you seem to have defined L to already be discounted @3% and you are discounting again?
    • Your second term, 0.9738(L/1.3 * 10%+L/1.30.3*0.01) -> You are trying to get the claims and reinsurance PFAD. There's still double discounting going on. I'm not sure why you are dividing by 1.3 and then multiplying by 0.3 in the highlighted term?
    • Basically it seems like what you are trying to do is say APV(gross UCL) = PV(Net Unpaid @3%) + Claims PFAD(Net) + Reinsurance PFAD(ceded). This looks like a mismatch
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