CAS Exam 5 Spring 2015, Question 8
Study guide: Exam 5
An insurance company is using the following data to determine an appropriate large loss threshold and excess loss factor for use in its overall ratemaking calculation:
| Accident Year | Reported Loss Including Severity Trend ($000) | Number of Claims Greater than $500,000 | Excess Ratio at $500,000 |
|---|---|---|---|
| 1999 | 56,261 | 8 | 5.5% |
| ... | ... | ... | ... |
| 2011 | 56,793 | 5 | 3.6% |
| 2012 | 57,049 | 11 | 6.3% |
| 2013 | 50,038 | 7 | 3.6% |
| Total | 813,339 | 121 | 4.8% |
- Excess ratio is the ratio of excess loss dollars to non-excess loss dollars.
- Total number of claims in accident years 1999 to 2013 = 12,435.
The following information is given for accident year 2014:
- Total reported losses including severity trend = $46,902,000.
- Total reported ALAE = $2,345,000.
- Loss and ALAE development factor = 1.08.
- Unlimited severity trend factor = 1.05.
- Unlimited frequency trend factor = 0.98.
500,000 limit applies to loss only. Individual claims, including severity trend, greater than500,000 are:
| Claim | Reported Loss Including Severity Trend |
|---|---|
| 1 | $504,000 |
| 2 | $644,000 |
| 3 | $817,000 |
| 4 | $975,000 |
Part a (1 point)
Calculate the 2014 excess ratio at $500,000 and justify a recommended excess ratio to be used in the company's overall rate indication.
Part b (1.25 points)
Calculate the 2014 projected ultimate losses and ALAE using an excess loss procedure.
Answer this question and see the worked solution