CAS Exam 5 Spring 2016, Question 7
Study guide: Exam 5
Given the following information:
| Expense Ratios | 2013 | 2014 | 2015 | % Fixed |
|---|---|---|---|---|
| General Expenses | 4.2% | 5.1% | 5.9% | 70% |
| Other Acquisition | 9.9% | 10.6% | 11.5% | 80% |
| Taxes, Licenses and Fees | 1.5% | 1.4% | 1.5% | 30% |
| Commission and Brokerage | 11.1% | 10.4% | 11.0% | 0% |
- Projected ultimate pure premium, including LAE = $600.
- Underwriting profit provision = 12%.
- Projected average premium per exposure = $1,000.
Part a (1.75 points)
Calculate the indicated average rate using the premium-based projection method for determining expense provisions. Justify all selections.
Part b (0.5 points)
Management would like to achieve its targeted underwriting profit without changing rates. Discuss whether this is a reasonable expectation based on the information above.
Answer this question and see the worked solution
Concepts tested
- Expense Provisions
- Underwriting Profit
- Fixed Expenses
- Variable Expenses
- Expense Ratio
- Non-Pricing Solutions