CAS Exam 5 Spring 2018, Question 8
Study guide: Exam 5
Given the following information as of December 31, 2017:
Cumulative Reported Loss + ALAE ($000s) as of (months)
| Accident Year | 12 | 24 | 36 |
|---|---|---|---|
| 2015 | 1,000 | 1,167.5 | 1,250 |
| 2016 | 1,100 | 1,285 | |
| 2017 | 1,050 |
| Calendar Year | Earned Premium ($000s) |
|---|---|
| 2015 | 1,900 |
| 2016 | 2,085 |
| 2017 | 2,100 |
| 2% | Annual loss and ALAE trend |
| 3% | Annual premium trend |
| 10% | Fixed Expense Ratio |
| 30% | Variable Expense Ratio |
| 5% | Profit and Contingencies Provision |
| 7% | ULAE Provision (as % of Loss and ALAE) |
| +4% | Rate change effective July 1, 2016 (only rate change in the past three years) |
| 1.067 | 36 to ultimate reported claim development factor |
- All policies are annual.
- Exposures are written evenly throughout each calendar year.
- Rates will be in effect for one year.
- The historical experience is fully credible.
Part a (4.25 points)
Calculate the ultimate losses and ALAE for each accident year using the Cape Cod technique incorporating rate change and trend.
Part b (2.25 points)
Calculate the indicated rate change for policies effective January 1, 2019 using the latest three accident years of experience.
Answer this question and see the worked solution