CAS Exam 5 Spring 2019, Question 2
Study guide: Exam 5
Given the following:
| Calendar Year | Earned Premium ($) |
|---|---|
| 2017 | 3,850,000 |
| 2018 | 4,200,000 |
| Rate Change Effective Date | Overall Rate Change |
|---|---|
| January 1, 2017 | 10% |
| July 1, 2017 | 5% |
| Quarter and Year | Average Written Premium at Current Rate Level |
|---|---|
| 2Q 2016 | $1,771 |
| 4Q 2016 | $1,806 |
| 2Q 2017 | $1,840 |
| 4Q 2017 | $1,877 |
| 2Q 2018 | $1,914 |
| 4Q 2018 | $1,953 |
- No rate changes occurred in 2016 or 2018.
- Rates will be in effect for one year.
- All policies are semi-annual.
- All policies are written uniformly throughout the year.
Part a (1.75 points)
Calculate the trended on-level earned premium for 2017 to be used in a rate change effective July 1, 2019.
Part b (0.5 points)
Briefly describe two reasons why the 2017 trended on-level earned premium would be higher if all policies were annual rather than semi-annual.
Answer this question and see the worked solution