CAS Exam 5 Spring 2016, Question 13
Study guide: Exam 5
An insurance company sells workers compensation insurance, which includes both indemnity and medical loss types. In preparation for its next rate filing, effective January 1, 2017, the company uses the following information about its book of business for accident year 2015, evaluated as of December 31, 2015:
| Territory | Exposures | Indemnity Loss & ALAE | Medical Loss & ALAE | Workers Compensation Total Current Relativity |
|---|---|---|---|---|
| A | 2,500 | $2,000,000 | $2,000,000 | 1.20 |
| B | 3,500 | $3,000,000 | $500,000 | 0.90 |
| C | 4,500 | $4,000,000 | $1,000,000 | 1.00 |
- Indemnity development factor to ultimate = 2.50.
- Medical development factor to ultimate = 1.50.
- Indemnity annual loss and ALAE trend = 3%.
- Medical annual loss and ALAE trend = 6%.
- Accidents are evenly distributed throughout the experience period.
- All policies are annual.
- Rates are in effect for one year.
- The base territory remains the same.
Part a (2.25 points)
Calculate the indicated territorial relativities to the base territory.
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.
Answer this question and see the worked solution
Concepts tested
- Territory Ratemaking
- Workers Compensation Insurance
- Development Factor
- Insurance Premium
- Loss Trend
- Pure Premium Analysis