CAS Exam 5 Fall 2018, Question 11
Study guide: Exam 5
Given the following for a large deductible commercial general liability policy:
| $500,000 | Per occurrence deductible |
| 90.0% | Loss elimination ratio for a $500,000 deductible |
| 10.0% | ALAE/ground up loss ratio |
| $2,000,000 | Ground up loss estimate |
| $100,000 | Fixed expenses |
| 12.0% | Variable expenses as % of premium |
| 4.0% | Underwriting profit as % of premium |
| 3.0% | Deductible processing cost as a % of losses below the deductible |
| 1.0% | Credit risk as a % of losses below the deductible |
| 7.0% | Additional risk margin as a % of excess losses |
- The insurer will handle all claims, including those that fall below the deductible.
- The insurer will make the payments on all claims and will seek reimbursement for amounts below the deductible from the insured.
- The deductible is for loss only.
- All ALAE is paid by the insurer.
Part a (1.75 points)
Calculate the premium for the large deductible policy.
Answer this question and see the worked solution
Concepts tested
- Deductible
- Loss Elimination Ratio
- Deductible Rating
- Allocated Loss Adjustment Expense
- Large Deductible Policy