CAS Exam 5 Fall 2019, Question 7
Study guide: Exam 5
Given the following data as of December 31, 2018:
| Accident Year | Cumulative Reported Loss + ALAE ($000s) as of 12 months | as of 24 months | as of 36 months |
|---|---|---|---|
| 2016 | 3,440 | 4,107 | 4,522 |
| 2017 | 3,427 | 4,109 | |
| 2018 | 3,545 |
| Calendar Year | Earned Premium ($000s) | Fixed Expenses ($000s) |
|---|---|---|
| 2016 | 10,500 | 1,155 |
| 2017 | 12,000 | 3,600 |
| 2018 | 12,500 | 1,500 |
| Rate Change History — Effective Date | Change |
|---|---|
| July 1, 2017 | 5% |
| July 1, 2018 | 2% |
| Value | Item |
|---|---|
| 4% | Annual loss and ALAE trend |
| 3% | Annual premium trend |
| 60% | Expected Loss and ALAE Ratio |
| 30% | Variable Expense Ratio |
| 5% | Profit and Contingencies Provision |
| 7% | ULAE Provision (as % of Loss and ALAE) |
| 1.031 | 36-to-ultimate tail factor |
- In 2017 the company implemented a new policy issuance system.
- Rates are in effect for one year.
- All policies are annual.
- Exposures are written evenly throughout each calendar year.
Calculate the indicated rate change for policies effective January 1, 2020 using the reported Bornhuetter-Ferguson technique for the last three accident years.
Part a (4.5 points)
Answer this question and see the worked solution
Concepts tested
- Overall Rate Level Indication
- Bornhuetter-Ferguson Method
- On Level Premium
- Fixed Expenses
- Parallelogram Method