You are given the following information on losses paid for each of AY1 through AY4:

			Incremental Loss Payments through Development Year
Accident Year	Earned Premium	Expected Loss Ratio	0	1	2	3
AY1	20,500	0.85	6,100	4,500	3,800	2,340
AY2	30,000	0.7	15,100	4,825	1,200
AY3	27,500	0.8	15,500	4,250
AY4	31,250	0.75	20,100

Estimate the loss reserve using the expected loss ratio method.

• 5,500
• 5,800
• 6,100
• 6,300
• 6,500

Solution: D

We compute:

Year	Expected Loss	Cumulative payments	Reserve
AY1	20,500 * 0.85 = 17,425	16,740	685
AY2	30,000 * 0.7 = 21,125	21,125	0
AY3	27,500 * 0.8 = 22,000	19,750	2,250
AY4	31,250 * 0.75 =23,437.5	20,100	3,337.5
			Total: 6,310.5