CAS Exam 5 Fall 2013, Question 2
Study guide: Exam 5
Given the following information:
- All policies have six-month terms.
- Policies are written uniformly during each six-month period and cannot be cancelled.
- The rating algorithm is: base rate × class factor + expense fee.
- The proposed effective date of the next rate change is July 1, 2013.
- A rate review is performed every six months.
Rate history (base rate per exposure × class factor + expense fee):
| Effective Date of Rates | Base Rate Per Exposure | Class Factor A | Class Factor B | Expense Fee |
|---|---|---|---|---|
| January 1, 2011 | $480 | 1.00 | 0.70 | $45 |
| July 1, 2011 | $488 | 1.00 | 0.70 | $45 |
| January 1, 2012 | $504 | 1.00 | 0.70 | $50 |
| July 1, 2012 | $500 | 1.00 | 0.75 | $50 |
| January 1, 2013 | $500 | 1.00 | 0.80 | $55 |
Written Exposures (000s) by policy effective date period:
| Policy Effective Dates | Class A | Class B |
|---|---|---|
| January 1, 2011 – June 30, 2011 | 125 | 50 |
| July 1, 2011 – December 31, 2011 | 150 | 100 |
| January 1, 2012 – June 30, 2012 | 175 | 150 |
| July 1, 2012 – December 31, 2012 | 200 | 200 |
Using the extension of exposures method, calculate the calendar year 2012 earned premium at current rate level.
Part a (2 points)
Answer this question and see the worked solution