CAS Exam 5 Spring 2013, Question 10
Study guide: Exam 5
Given the following information for a policy:
- Annual earned premium = $1,000.
- New business expected loss ratio = 60%.
- Losses expected to decrease $25 per year.
- New business expenses = $420.
- Renewal business expenses = $350.
- Probability of first renewal = 85%.
- Probability of second renewal = 90%.
- Probability of third renewal = 0%.
- Assume an annual discount rate of 3%.
Part a (1.75 points)
Calculate the lifetime value of the expected total profit as a percentage of premium.
Part b (0.5 points)
Identify two considerations used in the analysis in part a above that differ from standard actuarial ratemaking techniques.
Answer this question and see the worked solution