When would you choose a MfAD(clms) HIGHER than 20%

deborahjia1deborahjia1
in CIA.MfAD

One of the answers in the battle card is "if PfAD is already very low because best estimate of claims liability is very low".

I can't really get it. I remember previously it's said that PfAD is the corresponding $ value of MfAD. So how can we pick an unusual high MfAD given a very low PfAD?

Thanks for your time in answering this question in advance!

Comments

  • javidjavid

    Just going back to the linked exam for that battlecard, one of the answers given is "Estimate of unpaid claims is unusually low and MfAD is applied as a percentage".

    You are right that PFAD is the corresponding $ value of MfAD. In this case, what they are referring to is the fact that the estimate of unpaid claims is initially low. Suppose for example that it is $1000 (just an example where the number is low). If I'm applying a 20% MfAD, that brings me up to just $1200 (i.e. a $200 provision). So what they're saying here is that because the MfAD is a percentage increase, if the dollar amount of unpaid claims is low, a percentage increase may not be a sufficient provision. In this example, a higher percentage may need to be applied because the $200 provision is not enough.

    Let me know if this makes sense.

  • deborahjia1deborahjia1

    @javid Your explanation is very clear!!! Thank you so much. It makes sense to me now :smiley:

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