CAS Exam 5 Spring 2018, Question 5
Study guide: Exam 5
Given the following loss data for a property insurer:
Loss Peril
| Accident Year | Sizes of loss | Fire Claim Counts | Fire Ground-Up Losses ($) | Flood Claim Counts | Flood Ground-Up Losses ($) | Other Claim Counts | Other Ground-Up Losses ($) |
|---|---|---|---|---|---|---|---|
| 2014 | 0-$500,000 | 800 | 80,000,000 | 50 | 2,500,000 | 1,500 | 15,000,000 |
| > $500,000 | 20 | 12,000,000 | 30 | 16,500,000 | |||
| 2015 | 0-$500,000 | 780 | 81,900,000 | 1,450 | 15,225,000 | ||
| > $500,000 | 10 | 6,300,000 | 5 | 4,020,000 | |||
| 2016 | 0-$500,000 | 750 | 82,687,500 | 1,550 | 17,088,750 | ||
| > $500,000 | 25 | 13,891,500 |
| $500,000 | Excess loss threshold used by the insurer for individual reported losses |
The insurer's claims information relating to all major events that occurred in the past 3 years are:
- The definition of catastrophe losses is $25 million in losses across the industry.
- All flood claims were caused by a single flood event that occurred in 2014, causing $500 million direct insured losses in the industry.
- In 2016, one fire claim occurred for the insurer as the result of a forest fire, causing $25 million direct insured losses in the industry.
- Ground-up loss of this fire claim is $1,000,000.
- There is no further development on losses.
Part a (1.5 points)
Calculate the excess loss factor.
Part b (0.5 points)
Describe one reason to use an excess loss factor when setting property insurance rates.
Answer this question and see the worked solution