CAS Exam 5 Spring 2016, Question 8
Study guide: Exam 5
Given the following information for a book of business as of December 31, 2015:
| Rate Change History | |
|---|---|
| Effective Date | Change |
| October 1, 2013 | +4.5% |
| April 1, 2015 | +2.5% |
| Calendar Year | 2013 | 2014 | 2015 |
|---|---|---|---|
| Earned Premium | $1,870,000 | $2,228,000 | $2,404,000 |
| Earned Exposures | 1,420 | 1,530 | 1,610 |
Cumulative Reported Loss + ALAE ($) as of (months):
| Accident Year | 12 | 24 | 36 |
|---|---|---|---|
| 2013 | 2,150,000 | 2,395,000 | 2,495,000 |
| 2014 | 925,000 | 1,085,000 | |
| 2015 | 1,250,000 |
Cumulative Reported Loss + ALAE excluding Catastrophes ($) as of (months):
| Accident Year | 12 | 24 | 36 |
|---|---|---|---|
| 2013 | 750,000 | 895,000 | 975,000 |
| 2014 | 825,000 | 975,000 | |
| 2015 | 900,000 |
- All policies are semi-annual.
- Exposures are written evenly throughout each calendar year.
- Annual severity trend = 5%.
- Annual frequency trend = -1%.
- Annual premium trend = 2%.
- Fixed expense ratio = 5%.
- Variable expense ratio = 22%.
- Profit and contingencies provision = 6%.
- ULAE provision = 7% of loss and ALAE.
- Projected catastrophe load including ALAE = $235 per exposure.
- There is no loss development beyond 36 months.
- Rates are to be in effect for one year.
Calculate the indicated rate change for policies effective January 1, 2017 using the latest three accident years of experience and assuming full credibility.
Part a (4.75 points)
Answer this question and see the worked solution
Concepts tested
- Overall Rate Level Indication
- Trend
- Rate Change
- Accident Year
- Parallelogram Method
- Premium Trend
- Catastrophe Loss