CAS Exam 5 Fall 2015, Question 7
Study guide: Exam 5
Given the following ratemaking information for a catastrophe-prone homeowners book of business:
| Calendar/Accident Year | Earned Exposures (EE) | Amount of Insurance Years (AIY) ($000) | Non-Catastrophe Data: Indicated Ultimate Frequency Trended to 2014 | Non-Catastrophe Data: Indicated Ultimate Loss & ALAE Severity ($) Trended to 2014 |
|---|---|---|---|---|
| 2008 | 914,600 | 230,400 | 4.57% | 14,638 |
| 2009 | 928,300 | 240,800 | 4.16% | 12,624 |
| 2010 | 942,200 | 251,600 | 4.39% | 13,445 |
| 2011 | 956,300 | 262,900 | 4.12% | 12,306 |
| 2012 | 970,600 | 274,700 | 3.44% | 14,564 |
| 2013 | 985,200 | 287,100 | 3.11% | 11,634 |
| 2014 | 1,000,000 | 300,000 | 3.32% | 13,726 |
- All policies are annual.
- The new rates will be in effect for one year, beginning April 1, 2016.
- Projected average rate = $1,070.
- Annual frequency trend = 3%.
- Annual loss and ALAE severity trend = 4%.
- Annual AIY/EE ratio trend = 3%.
- 20-year average historical ratio of non-modeled catastrophe losses and ALAE to AIY = 0.08.
- Projected modeled average catastrophe loss and LAE = $68.36.
- Variable expense ratio = 18%.
- Fixed expense provision = $54.36.
- ULAE provision = 4% of loss and ALAE.
- Target underwriting profit provision = 6%.
Part a (1.75 points)
Using a frequency-severity technique with trending, calculate the ultimate non-catastrophe loss and ALAE for accident years 2013 and 2014. Justify any selections.
Part b (2.75 points)
Using the results from part a. above, calculate the indicated rate change using the pure premium method.
Answer this question and see the worked solution
Concepts tested
- Pure Premium Method
- Overall Rate Level Indication
- Underwriting Profit
- Catastrophe Loss
- Exposure Trend
- Loss Trend