CAS Exam 5 Fall 2017, Question 12
Study guide: Exam 5
Given the following information for an insurance company:
| Limit of Liability | Current Increased Limits Factor | Indicated Increased Limits Factor |
|---|---|---|
| 100,000 | 1.00 | 1.00 |
| 250,000 | 2.20 | 2.20 |
| 500,000 | 2.50 | 2.75 |
| 750,000 | 2.75 | 3.00 |
| 1,000,000 | 2.90 | 3.00 |
- The indicated increased limit factors are based on the company's own loss experience.
- Losses limited to $100,000 have been consistent over time.
- Expected losses limited to $100,000 = $500,000,000.
Part a (0.75 points)
Compare the expected losses for the excess layer between $500,000 and $1,000,000 based on the current increased limits factors and the indicated increased limits factors.
Part b (0.5 points)
Assess the appropriateness of implementing the indicated increased limits factors.
Part c (0.5 points)
The company wishes to offer policy limits exceeding $1,000,000 in the future. Propose an approach to calculating increased limits factors for the higher limits and briefly describe an implementation challenge the company may encounter.
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