CAS Exam 6C Fall 2015, Question 12
Study guide: Exam 6C
The following information is available for a property and casualty insurance company that only writes auto insurance as at December 31, 2014. All amounts are in thousands of dollars ($000s).
The cumulative accident year payment pattern is as follows:
| Age (months) | % cumulative paid |
|---|---|
| 12 | 25.0% |
| 24 | 50.0% |
| 36 | 75.0% |
| 48 | 100.0% |
The following additional information in connection with unearned premium reserve (UPR) is also available:
- Net Unearned Premium Booked at the end of 2014 = $69,580
- Future expected reinsurance costs = $4,260
- Undiscounted Expected Net Loss Ratio for 2015 = 98.0%
- Maintenance Expenses = $4,175
- Discount rate: 3.0%
- Margin for Adverse Deviation (MfAD) Claims development: 10.0%
- MfAD Recovery from reinsurance ceded: 1.0%
- MfAD Investment return rates: 0.5%
- ULAE Reserve = $3,160
- Gross Present Value of Losses & LAE = $68,260
- Unearned Reinsurance Commissions = $1,045
Calculate the Maximum Allowable Deferred Policy Acquisition Expenses (DPAE) and the premium deficiency, if any.
Part a (3.75 points)
No current syllabus covers this question; it is kept for the record.
Answer this question and see the worked solution
Concepts tested
- Premium Deficiency
- Deferred Policy Acquisition Expenses
- Margin for Adverse Deviations
- Unearned Premium
- Loss Reserve Discounting