CAS Exam 5 Spring 2017, Question 10
Study guide: Exam 5
Given the following information about an insurance product:
Territory Factors
| Territory | Factor |
|---|---|
| A | 0.85 |
| B | 1.00 |
| C | 1.35 |
- Fixed expense per exposure = $50.
- Variable expense ratio = 17%.
- Underwriting profit provision = 3%.
- LAE provision = 16% of loss cost.
- Base rate = $435.
- Policy fee = $55.
- Policy fee is an additive fee added to each exposure in the last step of the rate calculation.
Based on a separate analysis, an actuary projects the following for calendar-accident year 2018:
| Territory | Earned Exposures | Ultimate Loss Cost |
|---|---|---|
| A | 150 | $300 |
| B | 200 | $350 |
| C | 100 | $500 |
Part a (1.5 points)
Calculate the projected total underwriting profit for calendar-accident year 2018.
Part b (1.5 points)
Calculate the indicated policy fee, indicated territory factors, and indicated base rate.
Part c (0.5 points)
Management suggests reaching the targeted profit by only increasing the base rate. Discuss this approach.
Answer this question and see the worked solution