CAS Exam 5 Spring 2014, Question 4
Study guide: Exam 5
A product manager is proposing to revise rates in the scenarios described below. As an actuary, briefly assess the approach taken in each scenario and, if necessary, recommend an adjustment.
Part a (0.5 points)
The loss provision in the indicated rate for next year is calculated as historical reported loss divided by exposure.
Part b (0.5 points)
The indicated rate for next year is calculated using projected losses and loss adjustment expenses based on historical experience. In the next month, the company will be revising its underwriting guidelines, increasing the minimum deductible from 500 to 1,000.
Part c (0.5 points)
The indicated rate for a classification is calculated based on one year of historical data that includes 25 earned car years.
Part d (0.5 points)
The indicated rate change is calculated using the ratio of developed, trended historical losses capped at 100,000 to on-level total earned premium. Loss trend factors and loss development factors are determined using data limited to 100,000. The company has a significant number of claims in excess of $100,000.
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Concepts tested
- Ratemaking Data Organization
- Large Loss
- Complement of Credibility
- Pure Premium Method
- Credibility
- Loss Trend
- Loss Development
- Policy Provision Changes