CAS Exam 5 Fall 2018, Question 5
Study guide: Exam 5
Given the following:
| Accident Year | Incurred Loss and ALAE as of December 31, 2017 ($000s) |
|---|---|
| 2015 | $15,000 |
| 2016 | $8,000 |
| 2017 | $2,000 |
| Year Ending Quarter | Frequency | Severity ($) | Pure Premium ($) |
|---|---|---|---|
| March 31, 2014 | 0.055 | 18,200 | 1,001 |
| June 30, 2014 | 0.054 | 18,000 | 972 |
| September 30, 2014 | 0.056 | 18,100 | 1,014 |
| December 31, 2014 | 0.058 | 18,300 | 1,061 |
| March 31, 2015 | 0.058 | 18,500 | 1,073 |
| June 30, 2015 | 0.059 | 19,000 | 1,121 |
| September 30, 2015 | 0.062 | 19,200 | 1,190 |
| December 31, 2015 | 0.063 | 19,500 | 1,229 |
| March 31, 2016 | 0.065 | 19,750 | 1,284 |
| June 30, 2016 | 0.066 | 19,885 | 1,312 |
| September 30, 2016 | 0.066 | 20,000 | 1,320 |
| December 31, 2016 | 0.068 | 20,250 | 1,377 |
| March 31, 2017 | 0.069 | 20,445 | 1,411 |
| June 30, 2017 | 0.070 | 20,882 | 1,462 |
| September 30, 2017 | 0.069 | 21,000 | 1,449 |
| December 31, 2017 | 0.065 | 21,250 | 1,381 |
Annual Exponential Trends
| # of Points | Frequency | Severity | Pure Premium |
|---|---|---|---|
| 16 | 7% | 5% | 12% |
| 12 | 6% | 5% | 11% |
| 8 | 2% | 4% | 7% |
| 6 | 0% | 5% | 5% |
| 4 | -7% | 5% | -3% |
- All policies are semi-annual.
- Rates are to be in effect for 2 years.
- There is no development after 36 months.
- An underwriting change went into effect on July 1, 2017, materially changing the composition of the book of business.
- A planned rate change will go into effect on January 1, 2019.
Part a (2 points)
Calculate the projected 2015 accident year loss and ALAE to be used in the rate change analysis. Justify any trend selections.
Answer this question and see the worked solution