CAS Exam 5 Spring 2015, Question 7
Study guide: Exam 5
The following information applies to a company's book of annual policies:
- All policies are written on January 1 each year.
- All losses occur on July 1 each year.
- Loss costs increase by 5% each report year.
- All losses are reported within 4 years of the occurrence date.
- Loss notification is always made on December 31 of a given year.
- Exposure levels are constant and each policy has one exposure.
- There are no expense or profit provisions.
- The ultimate loss costs for report year 2014 are as follows:
| Report Year Lag | Loss Cost |
|---|---|
| 0 | $250 |
| 1 | $350 |
| 2 | $300 |
| 3 | $100 |
Part a (1 point)
Calculate the premium of a policy issued in 2015 on:
i. a mature claims-made policy ii. an occurrence policy
Part b (0.5 points)
Describe a scenario in which a mature claims-made policy would cost more than an occurrence policy.
Part c (1 point)
Beginning with losses occurring on or after January 1, 2015, a new law requires all losses to be reported within 2 years of the occurrence date. Explain the necessary adjustments, if any, to the premiums in part a. above without further calculations.
Answer this question and see the worked solution