CAS Exam 5 Spring 2015, Question 4
Study guide: Exam 5
Given the following information:
- Policies are written on an annual basis.
- Proposed rates will be in effect from January 1, 2016 to January 1, 2017.
- Calendar year 2014 earned premium = $100,000.
- Beginning with July 1, 2012 renewals, the minimum deductible was increased from
500 to1,000. - The premium impact of any law change is applicable to all policies, including those in-force.
- The rate change history is as follows:
| Effective Date | Overall Change | Type of Change |
|---|---|---|
| April 1, 2014 | +5% | Law |
| July 1, 2014 | +3% | Rate |
| July 1, 2015 | -7% | Rate |
- The annual premium exponential trend fit based on data for the 12 months ending each quarter evaluated through December 31, 2014 is as follows:
| Calendar Year Ending | Average Earned Premium at Current Rate and Law Level |
|---|---|
| March 2012 | $510.00 |
| June 2012 | $512.50 |
| September 2012 | $499.50 |
| December 2012 | $489.00 |
| March 2013 | $481.00 |
| June 2013 | $473.00 |
| September 2013 | $477.50 |
| December 2013 | $481.50 |
| March 2014 | $487.00 |
| June 2014 | $492.50 |
| September 2014 | $496.00 |
| December 2014 | $502.00 |
| Number of Points | Annual Exponential Trend Fit |
|---|---|
| 12 point | -0.5% |
| 8 point | 2.2% |
| 6 point | 3.4% |
| 4 point | 3.1% |
Calculate the trended calendar year 2014 earned premium at current rate level. Include justification of the premium trend selection.
Part a (2.25 points)
Answer this question and see the worked solution