CAS Exam 5 Spring 2014, Question 8
Study guide: Exam 5
A private passenger auto insurance company uses only two rating variables: territory and gender. The distribution of earned exposures is:
Earned Exposures
| Territory | Male | Female |
|---|---|---|
| 1 | 180 | 120 |
| 2 | 500 | 500 |
| 3 | 350 | 150 |
| Territory | Loss and LAE |
|---|---|
| 1 | $11,127 |
| 2 | $51,335 |
| 3 | $32,983 |
| Territory | Current Relativity |
|---|---|
| 1 | 0.750 |
| 2 | 1.000 |
| 3 | 1.125 |
| Gender | Current Relativity |
|---|---|
| Male | 1.000 |
| Female | 0.800 |
- Assume no adjustments are made to the relativities for expense considerations.
- Assume territory 2 remains the base territory.
For a revenue neutral overall change, calculate an indicated relativity change for policyholders in territory 3, accounting for any distortion that gender rating may cause.
Part a (2.25 points)
Answer this question and see the worked solution