CAS Exam 5 Spring 2014, Question 2
Study guide: Exam 5
A workers compensation insurance company uses the following data for ratemaking:
| Year | Industry Loss Cost Premium ($000) | Annual Payroll Level Change | Historical Average Experience Modification Factor |
|---|---|---|---|
| 2011 | 2,100 | 2.5% | 0.99 |
| 2012 | 2,500 | 2.0% | 0.98 |
| 2013 | 2,600 | 1.0% | 0.97 |
| Year | Reported Indemnity Claims ($000) | Annual Impact on Indemnity Claims Due to Benefit Level Changes | Indemnity Development Factor to Ultimate | Projected Ultimate Medical-Only Claims ($000) |
|---|---|---|---|---|
| 2011 | 850 | 2.0% | 1.20 | 735 |
| 2012 | 670 | 1.5% | 1.80 | 834 |
| 2013 | 460 | 0.5% | 2.70 | 900 |
- Expected future wage level change = 1.5% per year.
- Expected effect on indemnity claims due to future benefit level changes = 1.0% per year.
- Projected average experience modification factor = 0.98.
- Projected LAE percentage (as a percent of losses) = 15.0%.
- Assume no other loss cost inflation other than indemnity benefit level changes.
Calculate the projected ultimate loss & LAE ratio for year 2015.
Part a (3.25 points)
Answer this question and see the worked solution
Concepts tested
- Workers Compensation Insurance
- Ultimate Loss
- Insurance Premium
- Ratemaking
- Exposure Trend
- Loss Ratio
- Loss Development