CAS Exam 5 Fall 2016, Question 13
Study guide: Exam 5
An insurance company is considering updating its territorial relativities given the following information:
| Territory | Number of Exposures | Trended and Ultimate Incurred Losses & ALAE | Current Territorial Relativity |
|---|---|---|---|
| 1 | 30,000 | $3,000,000 | 1.100 |
| 2 | 50,000 | $4,000,000 | 1.000 |
| 3 | 25,000 | $1,500,000 | 0.850 |
- The base territory remains the same.
- Exposures are homogeneous within each territory.
- The full credibility standard = 45,000 exposures.
- Partial credibility is determined by the square root rule.
- Complement of credibility is equal to normalized current territorial relativities.
Part a (1.5 points)
Calculate the credibility weighted territorial relativities using the pure premium approach.
Part b (0.75 points)
Determine the percent change by territory, assuming the indicated relativities are to be adopted and no overall premium change is desired.
Part c (0.75 points)
Briefly discuss three reasons why proposed rate changes might deviate from indicated rate changes.
Answer this question and see the worked solution
Concepts tested
- Territory Ratemaking
- Credibility
- Pure Premium
- Insurance Premium
- Complement of Credibility
- Pure Premium Analysis
- Ratemaking Constraints