Actuarial Notes

Exam 8

Advanced Ratemaking (Exam 8) is a 4-hour computer-based exam (4.5-hour Pearson VUE appointment, with a 15-minute scheduled break) covering classification ratemaking and excess, deductible, and individual risk rating.

Learning Objectives

A. Classification Ratemaking (60–80%) Candidates are expected to go beyond mechanical construction to the comparison and evaluation of alternative classification ratemaking schemes.

  1. Develop the components of a classification ratemaking model and interpret their results (e.g., GLM & its extensions).
  2. Evaluate classification ratemaking models (e.g., benchmark, recalibrate variables, implementation).
  3. Measure and assess model fit.
  4. Measure statistical significance & credibility of rate classes including estimates of loss costs of rate classes.
  5. Evaluate the validity of rate classes.
  6. Calculate the loss cost of a class or group.
  7. Describe approaches to control for and integrate rating factors using predictive models for further analysis (e.g., territorial, limits).
  8. Describe approaches to modeling with high dimensional variables (e.g., vehicle make and model, workers compensation classes).
  9. Evaluate combinations of ratemaking component models (e.g., frequency/severity).

Readings: ASOP 12 · ASOP 25 · Bailey & Simon · Chalk et al. · Couret & Venter · Goldburd et al. · Holmes & Casotto · Mahler

B. Excess, Deductible, and Individual Risk Rating (20–40%) Candidates will be able to design and manage excess, deductible, and individual risk rating systems.

  1. Estimate aggregate loss distributions.
  2. Determine expected losses and variability by layer of insurance by applying frequency and severity distributions and evaluate reasonability of estimates.
  3. Calculate the cost of the layer of risk given the overall loss cost.
  4. Analyze a loss sensitive rating plan (e.g., retrospective rating).
  5. Analyze an experience rating plan.
  6. Assess the effectiveness of rating plans.

Readings: Bahnemann · Case Study for Fisher et al. · Fisher et al. · ISO (Commercial General Liability Experience and Schedule Rating Plan)

Source Material

Source Material

  • ASOP 12 - Risk Classification (ASB - 2005)
    • A2 — updated for deviation language in May 2011
  • ASOP 25 - Credibility Procedures (ASB - 2013)
    • A2-A3
  • Distributions for Actuaries (Bahnemann)
    • B1-B3 — Chapters 5 and 6, including errata; the material in Chapters 1-4 is assumed to be familiar
  • An Actuarial Note on the Credibility of Experience of a Single Private Passenger Car (Bailey and Simon - 1959)
    • A2-A4 — including the discussion of the paper by Hazam (PCAS XLVII, 1960)
  • From GLMs to Comprehensive Insurance Pricing: Techniques and Challenges (Chalk et al.)
    • A7-A8 — CAS Monograph #16, 1st edition
  • Using Multi-Dimensional Credibility to Estimate Class Frequency Vectors (Couret and Venter - 2008)
    • A2-A4
  • Individual Risk Rating Study Note (Fisher et al. - 2019)
    • B1-B6 — Version 3, October 2019
  • Individual Risk Rating Case Study (Fisher et al.)
    • B1-B6 — Excel file
  • Generalized Linear Models for Insurance Rating (Goldburd et al. - 2020)
    • A1, A3-A5, A9 — 2nd edition, 2025, including errata
  • Penalized Regression and Lasso Credibility (Holmes and Casotto - 2025)
    • A1, A3-A5 — CAS Monograph #13, 2025 revision, including errata
  • CGL Experience and Schedule Rating Plan (ISO)
    • B5-B6 — Manual Notice GL-MU-2019-CGLES-001; the entire manual is provided in the study kit and on the exam, so candidates are expected to use it, not memorize it
  • An Example of Credibility and Shifting Risk Parameters (Mahler - 1990)
    • A2, A4 — excluding the appendices