CAS Exam 5 Spring 2013, Question 2
Study guide: Exam 5
Given the following information for an insurance company:
- Proposed effective date of the next rate change is January 1, 2014.
- Rates will be in effect for 1 year.
- All policies have 12-month terms and are written uniformly throughout the year.
- Calendar year 2012 earned premium at current rate level is $114,208,050.
| 12-Month Period Ending | Written Premium at Current Rate Level | Written Exposures |
|---|---|---|
| December 31, 2011 | $104,500,000 | 110,000 |
| June 30, 2012 | $113,800,500 | 121,000 |
| December 31, 2012 | $123,916,100 | 133,100 |
Part a (1 point)
Utilizing one-step trending, calculate the calendar year 2012 projected earned premium at current rate level for use in calculating the rate change.
Part b (0.25 points)
Briefly discuss why a premium trend should be utilized in a rate level indication.
Part c (0.25 points)
Briefly discuss why it is inappropriate to use written premium at historical rate levels to determine premium trends.
Part d (0.5 points)
The insurance company decides to move all existing business with a $100 deductible to a $500 deductible upon renewal during calendar year 2013. Given this new information, discuss whether the true projected earned premium will be higher, lower, or unchanged from that in Part a.
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