CAS Exam 7 Spring 2014, Question 12
Study guide: Exam 7
A single retrospectively rated policy has the following adjustments:
| Adjustment | Incremental Losses | Incremental Premium |
|---|---|---|
| 1 | $100,000 | $150,000 |
| 2 | 50,000 | 25,000 |
| 3 | 15,000 | 0 |
| 4 | 20,000 | 5,000 |
| 5 | 5,000 | -1,250 |
Part a (0.5 points)
Discuss why incremental premium can be greater than incremental losses at the first adjustment.
Part b (0.5 points)
Explain how a positive fourth adjustment to the incremental premium could follow a third adjustment of $0.
Part c (0.75 points)
Explain how the observed premium development to loss development (PDLD) ratio could become negative for the fifth adjustment.
Answer this question and see the worked solution