CAS Exam 5 Fall 2013, Question 10
Study guide: Exam 5
An insurance company develops territorial indications using a univariate pure premium analysis and has the following experience:
| Territory | Earned Exposures | Reported Loss & ALAE ($000s) | Current Relativity |
|---|---|---|---|
| A | 100,000 | $60,000 | 1.00 |
| B | 250,000 | $300,000 | 1.40 |
| Total | 350,000 | $360,000 |
| Amount of Insurance Group | Charged Factor | Territory A Exposures | Territory B Exposures |
|---|---|---|---|
| Low | 0.75 | 50,000 | 25,000 |
| Medium | 1.00 | 30,000 | 75,000 |
| High | 1.50 | 20,000 | 150,000 |
| Total | 100,000 | 250,000 |
Part a (0.5 points)
Describe how distortion can occur using a univariate approach.
Part b (1.5 points)
Calculate the indicated pure premium relativities, while accounting for distortion that may be occurring due to amount of insurance differences by territory.
Answer this question and see the worked solution