CAS Exam 5 Fall 2016, Question 4
Study guide: Exam 5
Given the following information:
| Accident Year | Frequency | Severity |
|---|---|---|
| 2011 | 0.100 | $25,000 |
| 2012 | 0.090 | $27,250 |
| 2013 | 0.081 | $30,248 |
| 2014 | 0.082 | $33,423 |
| 2015 | 0.080 | $36,599 |
| Accident Year | Ultimate Losses ($000) |
|---|---|
| 2013 | 48,000 |
| 2014 | 55,000 |
| 2015 | 60,000 |
- Exposures are constant.
- The company only writes semi-annual policies.
- The rate filing will be effective on January 1, 2017.
- Rates will be in effect for one year.
Part a (2.5 points)
Calculate the average annual trended ultimate losses that should be used to determine the indicated rate change. Briefly justify the frequency trend and severity trend selections.
Part b (0.5 points)
Discussions with the underwriting team reveal that changes in underwriting guidelines in the 2012 policy year resulted in lower claim counts. Describe how this information may change the estimate in part a. above without performing any additional calculations.
Part c (0.75 points)
Discussions with the underwriting team reveal that the company has been writing fewer high deductible policies, starting in policy year 2014. Fully describe how this information may change the estimate in part a. above without performing any additional calculations.
Answer this question and see the worked solution