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Describe the difference between implicit and explicit margins when calculating reserves giving an example of each one. Explain why explicit margins are usually preferred by external parties. (4 Marks) An insurance company is preparing to calculate the claims reserves it needs to hold for one of its lines of business. The data that relates to these lines is given below Amount of Claims Paid Development Year 2 0 3 4 2013 2014 4405 4780 3421 3999 2982 2593 3125 602 Accident Year 3431 Unknown 3882 Unknown Unknown 2015 2016 5445 6210 4408 4858 Unknown Unknown Unknown 7123 Unknown Unknown Unknown Unknown 2017 Number of Claims Paid Development Year 2 0 1 2013 2014 112 125 80 95 45 54 19 24 4 Accident Unknown Year 2015 102 57 141 Unknown Unknown Unknown Unknown Unknown Unknown Unknown Unknown Unknown 2016 158 114 2017 175 a) Calculate the reserves using the average cost per claim method (you can assume that all assumptions hold and that the amounts have been converted into real terms) giving the specific total amounts that will be paid in each calendar year 2018 through 2021 b) State all the assumptions that are required for this reserving method. c) Explain the advantages that this method has over the basic chain ladder method. d) Comment on the average claims paid in each development year. (18 marks) i) A fellow student has said that the loss ratio method is of no use in the real world as it is too crude. Comment on this suggestion (3 Marks) Describe the difference between implicit and explicit margins when calculating reserves giving an example of each one. Explain why explicit margins are usually preferred by external parties. (4 Marks) An insurance company is preparing to calculate the claims reserves it needs to hold for one of its lines of business. The data that relates to these lines is given below Amount of Claims Paid Development Year 2 0 3 4 2013 2014 4405 4780 3421 3999 2982 2593 3125 602 Accident Year 3431 Unknown 3882 Unknown Unknown 2015 2016 5445 6210 4408 4858 Unknown Unknown Unknown 7123 Unknown Unknown Unknown Unknown 2017 Number of Claims Paid Development Year 2 0 1 2013 2014 112 125 80 95 45 54 19 24 4 Accident Unknown Year 2015 102 57 141 Unknown Unknown Unknown Unknown Unknown Unknown Unknown Unknown Unknown 2016 158 114 2017 175 a) Calculate the reserves using the average cost per claim method (you can assume that all assumptions hold and that the amounts have been converted into real terms) giving the specific total amounts that will be paid in each calendar year 2018 through 2021 b) State all the assumptions that are required for this reserving method. c) Explain the advantages that this method has over the basic chain ladder method. d) Comment on the average claims paid in each development year. (18 marks) i) A fellow student has said that the loss ratio method is of no use in the real world as it is too crude. Comment on this suggestion