CAS Exam 5 Fall 2017, Question 8
Study guide: Exam 5
Given the following information about an insurance product filing with annual policies:
- 2018 projected pure premium = $350.
- Loss cost annual trend = 3%.
- Premium annual trend = 4%.
- Fixed expense per exposure, new business = $50.
- Fixed expense per exposure, renewals = $6.
- Variable expense ratio = 18%.
- Profit and contingencies provision = 6%.
- LAE provision = 10% of loss.
- Retention ratio = 80%.
- Discount rate = 5%.
Part a (1.5 points)
Calculate the new business premium per exposure for 2018 indicated by a lifetime value analysis using a two-year time horizon.
Part b (0.75 points)
Fully justify the use of lifetime value analysis in a rate indication using the Statement of Principles Regarding Property and Casualty Ratemaking.
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