Exam 5 Practice Question 7
Study guide: Exam 5
An actuary is selecting an expected claim ratio for accident year 2026 for a private passenger automobile bodily injury book. A tort reform took effect January 1, 2022, and an independent analysis estimates that it reduces the cost of claims occurring on or after that date by 20%.
The claim ratios below have already been trended and adjusted to the current rate level, but not adjusted for the reform:
| Accident year | 2020 | 2021 | 2022 | 2023 | 2024 |
|---|---|---|---|---|---|
| Trended, on-level claim ratio | 85% | 90% | 68% | 70% | 72% |
The actuary selects the straight average of the five claim ratios after restating each to the tort environment of accident year 2026.
Calculate the selected expected claim ratio.
- A) Less than 65%
- B) At least 65%, but less than 75%
- C) At least 75%, but less than 80%
- D) At least 80%, but less than 87%
- E) At least 87%
Answer this question and see the worked solution