CAS Exam 5 Fall 2015, Question 4
Study guide: Exam 5
An actuary is calculating a rate change to be effective July 1, 2016. Given the following:
- Policies are written on a semi-annual basis.
- Rates are expected to be in effect for one year.
- The exposure base is non-inflationary.
- The annual frequency and severity exponential trend fits based on data for the 12 months ending each quarter evaluated through December 31, 2014 are as follows:
| Number of Points | Frequency Exponential Fit | Severity Exponential Fit |
|---|---|---|
| 20 point | -2.9% | 3.4% |
| 16 point | -3.2% | 3.0% |
| 12 point | -2.5% | 2.8% |
| 8 point | -0.5% | 2.9% |
| 6 point | 3.0% | 3.1% |
| 4 point | 2.8% | 3.3% |
Calculate a pure premium trend factor for accident year 2012, justifying the selected trends and methodology.
Part a (2.25 points)
Answer this question and see the worked solution