CAS Exam 5 Spring 2014, Question 11
Study guide: Exam 5
A large commercial insured purchased a retrospectively rated annual policy to cover its workers compensation exposure in 2014. The first computation of the retrospective premium will occur on April 1, 2015, based on the following information and provisions:
| Limited Reported Losses valued as of April 1, 2015: | $200,000 |
| Standard Premium: | $695,000 |
| Net Insurance Charge | 0.181 |
| Minimum retrospective premium ratio: | 75% |
| Maximum retrospective premium ratio: | 125% |
| Loss Conversion Factor: | 1.08 |
| Expense Allowance (excludes tax multiplier): | 15% |
| Tax Multiplier: | 1.04 |
| Expected Loss Ratio: | 62% |
Part a (1.5 points)
Calculate the retrospective premium for this policy as of April 1, 2015, including any necessary adjustments for minimum and maximum premium provisions.
Part b (0.5 points)
Briefly describe two elements that the basic premium is intended to cover for a retrospectively rated policy.
Answer this question and see the worked solution