CAS Exam 5 Spring 2018, Question 4
Study guide: Exam 5
An actuary uses classical credibility to develop full credibility standards for a private passenger auto indication.
Given the following information for State A:
| Coverage | Exposures 2015 | Exposures 2016 | Exposures 2017 | Claim Counts 2015 | Claim Counts 2016 | Claim Counts 2017 |
|---|---|---|---|---|---|---|
| Bodily Injury | 20,000 | 24,000 | 22,000 | 1,020 | 1,100 | 950 |
| Collision | 18,000 | 21,000 | 19,000 | 1,700 | 2,100 | 1,975 |
| 1,082 | Claim counts standard for full credibility |
Part a (0.5 points)
Calculate the number of exposures needed for full credibility for each coverage.
Part b (0.25 points)
Briefly explain why an actuary may prefer using an exposure standard for full credibility over a claim standard.
Part c (0.5 points)
Briefly describe one advantage and one disadvantage of using classical credibility.
Part d (0.5 points)
Propose a complement of credibility for the indication analysis and briefly evaluate the proposed complement.
Answer this question and see the worked solution