Exam ASTAM Practice Question 1
Study guide: Exam ASTAM
An insurer is setting rates for annual policies that will be written from January 1, 2026 to December 31, 2026; each policy provides coverage for one year from the day it is written. The experience period is accident year 2024, whose losses, developed to ultimate, total 4,200,000. Losses occur uniformly over every period.
The insurer's average claim cost (severity) by accident year, developed to ultimate, is:
| Accident year | Average claim cost |
|---|---|
| 2019 | 5,200 |
| 2020 | 5,450 |
| 2021 | 5,900 |
| 2022 | 6,150 |
| 2023 | 6,600 |
| 2024 | 7,000 |
Claim frequency has shown no trend, so loss trend is taken to be the severity trend.
Part a (2 points)
Fit an exponential trend to the six average claim costs by least squares — regress the natural logarithm of the average claim cost on the accident year — and calculate the fitted annual trend rate. Enter it as a percentage to one decimal place, without the % sign (for example, 3.5).
Part b (1 point)
Calculate the trend period, in years, from the experience period to the period in which the new rates' losses will occur. Enter it to one decimal place.
Part c (1 point)
Using the trend rate from Part a rounded to 6.2% and a trend period of 2.5 years, calculate the projected losses for accident year 2024 at the cost level of the policy period. Give your answer to the nearest whole number.
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