Brosius

Question 1

Appropriate situations for:

1) link ratio
2) budgeted loss
3) least squares

Answer 1

1) Older AYs with stable development
2) Past data not available
3) When random year-to-year fluctuations in loss data is significant

Question 2

Two adjustments for least squares for a business with a growing book

Answer 2

Correct for inflation

Divide each year’s losses by exposure base

Question 3

Three possible solutions when reported losses is 8% more than expected losses

Answer 3

Reduce reserve (budgeted loss)
Leave reserve at same level (BF method)
Increase bulk reserve (chain ladder)