CAS Exam 5 Spring 2018, Question 12
Study guide: Exam 5
Given the following information for an insurance company:
| Class | Earned Exposures | Reported Loss and ALAE | Number of Claims | Current Relativity | True Relativity |
|---|---|---|---|---|---|
| A | 15,271 | $864,000 | 924 | 1.00 | 1.00 |
| B | 7,250 | $732,000 | 623 | 1.10 | 1.73 |
| C | 10,532 | $505,000 | 185 | 1.80 | 0.72 |
| 18,000 | Full credibility standard for number of earned exposures |
- Partial credibility is determined based on the square root rule.
- Complement of credibility is equal to normalized current class relativities.
- Class A remains the base class.
Part a (2 points)
Calculate the indicated rate change for each class to achieve a revenue-neutral overall change.
Part b (0.25 points)
Briefly describe one possible reason why the indicated relativities do not match the true relativities.
Part c (0.25 points)
Briefly explain an adjustment to the univariate pure premium method to improve its result.
Answer this question and see the worked solution