CAS Exam 5 Spring 2014, Question 7
Study guide: Exam 5
Given the following information:
| Limit | Premium | Increased Limits Factor |
|---|---|---|
| $100,000 | $1,000,000 | 1.00 |
| $250,000 | $500,000 | 2.00 |
| $500,000 | $400,000 | 2.75 |
| $750,000 | $300,000 | 3.25 |
| $1,000,000 | $200,000 | 3.50 |
| TOTAL | $1,900,000 |
Part a (0.5 points)
Given that the losses capped at 250,000 are 1,500,000, calculate a complement of credibility for the losses in the layer between 500,000 and 750,000.
Part b (1.25 points)
Assume that the expected total limits loss ratio is 65%. Using the limits analysis approach, calculate the complement of credibility for the layer between 500,000 and 750,000.
Part c (0.5 points)
Provide two criticisms of using the limits analysis approach to develop a complement of credibility.
Answer this question and see the worked solution