CAS Exam 5 Fall 2013, Question 13
Study guide: Exam 5
The chief underwriter of a company offering homeowners insurance informs the chief actuary that an analysis has been performed on the replacement costs of all properties in the book of business. The book of business contains only two territories, A and B.
The analysis indicates that for the past 10 years, all properties in territory A have been uniformly underinsured by 20% while all properties in territory B have been adequately insured. The current insurance contract at the insurance company does not include any guaranteed cost replacement endorsement or coinsurance clause. The chief actuary is aware that the rating structure has been fully reviewed in the past year.
Discuss the overall premium adequacy, territorial premium adequacy, and the premium equity among the insureds.
Part a (1.5 points)
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