CAS Exam 5 Fall 2014, Question 6
Study guide: Exam 5
Given the following information:
- Projected ultimate pure premium, including LAE = $450.
- Underwriting profit provision = 5%.
- Projected average premium per exposure = $750.
| Expense Category | Selected Expense Ratio | % Fixed |
|---|---|---|
| General Expenses | 6.0% | 75% |
| Other Acquisition | 9.5% | 75% |
| Taxes, Licenses and Fees | 2.8% | 25% |
| Commission and Brokerage | 12.0% | 0% |
Part a (0.5 points)
Calculate the indicated average rate using the all variable expense method for determining expense provisions.
Part b (1 point)
Calculate the indicated average rate using the premium-based projection method for determining expense provisions.
Part c (0.75 points)
Assume the historical average premium per exposure on which the selected expense provisions are based is $675. Discuss whether the result calculated in part b. above is excessive or inadequate.
Answer this question and see the worked solution