CAS Exam 5 Fall 2019, Question 3
Study guide: Exam 5
Given the following information:
| Current Rate Review | |
|---|---|
| Number of Exposures | 20,000 |
| Indicated Rate Change before credibility | 7.9% |
| Projected Frequency | 3.0% |
| Annual Loss Trend | -1.0% |
| Annual Premium Trend | 1.5% |
| Target Effective Date | January 1, 2019 |
| Prior Rate Review | |
|---|---|
| Indicated Rate Change | 8.0% |
| Implemented Rate Change | 3.5% |
| Effective Date | January 1, 2017 |
| Normal Distribution Table | |
|---|---|
| p | z(p) |
| 0.800 | 0.842 |
| 0.850 | 1.036 |
| 0.900 | 1.282 |
| 0.950 | 1.645 |
| 0.975 | 1.960 |
| 0.990 | 2.326 |
- The loss experience is considered fully credible if there is a 90% probability that the observed experience is within 2.5% of its expected value.
Part a (2.25 points)
Calculate the credibility-weighted indicated rate change using the classical credibility approach and trended present rates as the complement of credibility.
Part b (0.75 points)
Identify three other complements of credibility appropriate for first dollar ratemaking.
Answer this question and see the worked solution
Concepts tested
- Complement of Credibility
- Limited Fluctuation Credibility
- Full Credibility Standard
- Partial Credibility