CAS Exam 5 Spring 2016, Question 6
Study guide: Exam 5
Given the following for an individual state:
| Selected Loss and ALAE Ratio | 105.5% |
| Expense and ULAE Ratio | 30.7% |
| Profit and Contingency Provision | -5.0% |
| Number of Reported Claims | 109 |
| Claims Required for Full Credibility Standard | 683 |
| Countrywide Indicated Rate Change | 8.5% |
- Partial credibility is determined using the square root rule.
Part a (1 point)
Calculate the credibility-weighted indicated rate change for this state.
Part b (0.25 points)
Briefly describe a situation where the given profit and contingency provision may be appropriate.
Part c (1 point)
Discuss two situations where the pure premium method is preferable to the loss ratio method for calculating an indicated rate change.
Answer this question and see the worked solution
Concepts tested
- Overall Rate Level Indication
- Profit and Contingency Provision
- Complement of Credibility
- Full Credibility Standard
- Pure Premium Method
- Loss Ratio Method