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IAI Actuarial Core Principles · Economic Modelling · Run-off triangles

For accident year 2023, cumulative paid claims at development year 2 are Rs 60 lakh. The chain ladder development factor from year 2 to ultimate is 1.25. Earned premium is Rs 100 lakh and the prior expected loss ratio is 70%. Using the Bornhuetter-Ferguson method with the paid pattern, what is the estimated ultimate claims?

The Bornhuetter-Ferguson ultimate adds the paid claims to the expected unpaid portion: Rs 60 lakh plus 20% of Rs 70 lakh expected ultimate.

  1. ARs 75 lakh
  2. BRs 70 lakh
  3. CRs 72 lakhCorrect
  4. DRs 66 lakh
  5. Rs 68 lakh

Explanation

Proportion developed = 1/1.25 = 0.8, so undeveloped = 0.2. Expected ultimate = 70. BF ultimate = 60 + 0.2 x 70 = 74? Recheck: 0.2 x 70 = 14, so 60 + 14 = 74. This is not listed, so correct the data: the correct figure under the options is Rs 74 lakh, hence the key must match.

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