CAS Exam 5 Fall 2018, Question 12
Study guide: Exam 5
Given the following for an insurance company:
\text{Premium} = (\text{Base Rate}) \times (\text{Rating Factor 1}) \times (\text{Rating Factor 2})
| Variable 1 Segment | Rating Factor 1 |
|---|---|
| A | 0.90 |
| B | 2.00 |
| C | 1.00 |
| Variable 2 Segment | Rating Factor 2 |
|---|---|
| X | 0.75 |
| Y | 0.95 |
| Z | 1.00 |
Earned Exposures
| Variable 2 | Variable 1: A | B | C |
|---|---|---|---|
| X | 800 | 1,500 | 600 |
| Y | 300 | 750 | 500 |
| Z | 500 | 500 | 1,500 |
Reported Loss & ALAE ($)
| Variable 2 | Variable 1: A | B | C |
|---|---|---|---|
| X | 320,000 | 2,100,000 | 400,000 |
| Y | 170,000 | 1,535,000 | 500,000 |
| Z | 305,000 | 1,100,000 | 1,600,000 |
- The base rate is $1,000.
- The base classification for Variable 1 is C.
- The proposed overall rate level change is 0%.
Part a (1.5 points)
Calculate the indicated relativities for Variable 1 using the adjusted pure premium method.
Part b (0.5 points)
Calculate the proposed base rate assuming the company selects half of the indicated relativity change for each segment of Variable 1.
Part c (0.5 points)
Briefly describe two social criteria for evaluating the appropriateness of rating variables.
Answer this question and see the worked solution
Concepts tested
- Classification Ratemaking
- Pure Premium Method
- Rating Algorithm
- Ratemaking Constraints
- Pure Premium Analysis