CAS Exam 5 Fall 2016, Question 7
Study guide: Exam 5
A regulator wants to benchmark the underwriting profit provisions between companies.
For Company A's rate filing, the following is assumed:
| Projected total fixed costs | $50,000 |
| Projected total loss and LAE | $600,000 |
| Projected exposures | 2,000 |
| Indicated rate per exposure | $500 |
For Company B's rate filing, the following is assumed:
| Projected total fixed costs | $50,000 |
| Projected total loss and LAE | $600,000 |
| Projected premium at current rates | $900,000 |
| Indicated rate change | 16.5% |
- The variable expense ratio is the same for each company.
Part a (1.25 points)
Determine which company's filing includes the higher underwriting profit provision.
Part b (0.5 points)
List two reasons the underwriting profit provision might differ between companies with the same loss, LAE and expense experience.
Answer this question and see the worked solution
Concepts tested
- Underwriting Profit
- Expense Ratio
- Rate Change
- Insurance Premium
- Pure Premium Method
- Loss Ratio Method