CAS Exam 6C Fall 2015, Question 1

Study guide: Exam 6C

A pricing actuary is working for a major insurer in the province of Ontario. After meeting with the executive team, he is asked to prepare a Major Private Passenger Automobile Insurance rate filing to Financial Services Commission of Ontario ("FSCO").

Part a (0.75 points)

In preparing the loss data for the overall rate level indication, briefly discuss how each of the following is treated:

i. reinsurance transactions
ii. insurer's cession to the Risk Sharing Pool
iii. losses incurred on Facility Association Residual Market risks.

Part b (1.75 points)

This insurer's rating algorithm consists of three territories. After reviewing the territorial indication for a given coverage, the following changes are proposed in the rate filing.

Territory	Current Territory Differentials	Indicated Territory Differentials	Proposed Territory Differentials
1	1.10	1.20	1.12
2	1.00	1.06	1.05
3	0.90	0.75	0.75
Overall	1.00	1.00	0.97

Assuming the territorial indications are actuarially sound, demonstrate whether the proposed territorial differentials meet the requirement for approval.

Part c (0.5 points)

Briefly describe the two bases of justification that can be used to support proposed changes to its current group discount.

Part d (0.5 points)

The actuary is proposing to introduce a "Winter Tire Discount" but realized that the insurer's database has never tracked winter tire related information. Describe appropriate supporting information that can be used by the actuary to justify this discount with FSCO.

Part e (0.5 points)

A monthly premium payment plan is being proposed for 12-month term policies. It requires an initial payment equal to 3 monthly installments of the total premium and charges an interest rate of 5 percent of the total premium. Briefly describe two changes to the proposal before obtaining FSCO approval.

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