IAI Actuarial Core Principles · Economic Modelling · Run-off triangles
An insurer writes a motor portfolio for accident year 2024 with earned premium of Rs 50 crore. Its prior expectation of the ultimate loss ratio is 70%. Claims paid to date are Rs 18 crore and no case reserves are held. Using the Loss Ratio (expected claims) method, what is the estimated outstanding claims reserve?
The reserve is Rs 17 crore. The loss ratio method sets ultimate claims at 70% of Rs 50 crore premium, which is Rs 35 crore, and then subtracts the Rs 18 crore already paid, leaving Rs 17 crore still to be paid.
- ARs 17 croreCorrect
- BRs 35 crore
- CRs 32 crore
- DRs 18 crore
- Rs 53 crore
Explanation
Ultimate claims = 70% x 50 = Rs 35 crore. Reserve = ultimate minus paid = 35 - 18 = Rs 17 crore. Rs 35 crore is wrong because it ignores payments already made, treating the ultimate as the reserve.
Did you get it right without looking?
One question tells you little. A timed set on Run-off triangles shows your real accuracy, how long you take and where you lose marks.
More Run-off triangles questions
- An actuary applies the average cost per claim method to a run-off triangle. Which combination of inputs does this method project separately …
- Which practical check is most appropriate before relying on a chain-ladder projection of a claims triangle?
- An insurer has an accident year with cumulative incurred claims of Rs 40 crore, and a development factor to ultimate of 1.6 (so 62.5% develo…
- In the average cost per claim method applied to a run-off triangle of incurred or paid claims, which pair of triangles is needed to project …
- Compared with the basic chain ladder method, why is the Bornhuetter-Ferguson method often preferred for the most recent, immature accident y…
- When projecting a cumulative claims run-off triangle with the basic chain ladder method, which assumption is made about the pattern of claim…