CAS Exam 5 Spring 2013, Question 13
Study guide: Exam 5
Given the following for a large deductible commercial general liability policy:
| Item | Value |
|---|---|
| Per occurrence deductible | $250,000 |
| Loss elimination ratio for a $250,000 deductible | 80% |
| ALAE/ground-up loss ratio | 10% |
| Ground-up loss estimate | $2,000,000 |
| Fixed expenses | $100,000 |
| Variable expenses as % of premium | 12% |
| Underwriting profit as % of premium | 3% |
| Deductible processing cost as % of losses below the deductible | 5% |
| Credit risk as % of losses below the deductible | 2% |
| Additional risk margin as % of excess losses | 8% |
Additional information:
- The insurer will handle all claims, including those that fall below the deductible.
- The insurer will make the payments on all claims and will seek reimbursement for amounts below the deductible from the insured.
- The deductible is for loss only.
- All ALAE is paid by the insurer.
Calculate the premium for the large deductible policy.
Part a (2 points)
Answer this question and see the worked solution
Concepts tested
- Self-Insured Retention
- Expense Provisions
- Deductible Rating
- Large Deductible Policy
- Loss Elimination Ratio