CAS Exam 5 Fall 2018, Question 3
Study guide: Exam 5
Given the following:
| Effective Date | Overall Average Rate Change | Rate Per Exposure ($) | Class Factor X | Class Factor Y | Class Factor Z | Expense Fee ($) |
|---|---|---|---|---|---|---|
| January 1, 2016 | 0.0% | 1,000 | 1.20 | 0.85 | 1.00 | 120 |
| July 1, 2017 | 10.0% | 1,112 | 1.20 | 0.85 | 1.00 | 120 |
| October 1, 2017 | 0.0% | 1,175 | 1.10 | 0.75 | 1.00 | 120 |
| April 1, 2018 | 1.0% | 1,175 | 1.10 | 0.75 | 1.00 | 132 |
- All policies are semi-annual.
- Exposures are written uniformly throughout the year.
- Expense fee is a per exposure fee that is added in the last step of the rate calculation.
Part a (0.75 points)
Calculate the on-level factor for calendar year 2017 earned premium using the parallelogram method.
Part b (0.5 points)
Calculate the on-level factor for a policy effective on April 1, 2017 within Class Y using the extension of exposure method.
Part c (0.5 points)
Assess the appropriateness of using the parallelogram method to calculate indicated class factors using the loss ratio method.
Answer this question and see the worked solution
Concepts tested
- On Level Premium
- On-Leveling
- Rate Change
- Classification Ratemaking
- Parallelogram Method
- Extension of Exposures