CAS Exam 5 Spring 2013, Question 15
Study guide: Exam 5
An employer negotiated a workers compensation retrospective policy with an insurer, effective from January 1, 2011 to December 31, 2011. The first adjustment of the retrospective premium occurs six months after the end of the policy period and annually thereafter until the tenth adjustment.
The reported losses during the policy period evaluated as of June 30, 2012 are as follows:
| Claim | Reported Losses |
|---|---|
| #1 | $300,000 |
| #2 | $200,000 |
| #3 | $100,000 |
The provisions for this retrospective rating plan are as follows:
| Item | Value |
|---|---|
| Minimum retrospective premium ratio | 50% |
| Maximum retrospective premium ratio | 150% |
| Loss Conversion Factor | 1.2 |
| Per Accident Loss Limitation | $150,000 |
| Expense Allowance Excluding Tax Multiplier | 25% |
| Expected Loss Ratio | 60% |
| Tax Multiplier | 1.05 |
| Net Insurance Charge | 44.6% |
| Standard Premium | $540,000 |
Part a (2 points)
Calculate the retrospective premium as of June 30, 2012.
Part b (0.5 points)
Discuss what could cause the retrospective premium in part a. above to change for the insured between June 30, 2012 and the tenth adjustment.
Answer this question and see the worked solution