CAS Exam 7 Spring 2015, Question 14
Study guide: Exam 7
Given the following information:
| Item | Value |
|---|---|
| Basic premium factor | 0.20 |
| Loss conversion factor | 1.20 |
| Tax multiplier | 1.05 |
| Loss capping ratio (first adjustment) | 85% |
| Incremental loss capping ratio (second adjustment) | 60% |
| Expected loss ratio | 75% |
| Percent of loss emerged at first adjustment | 80% |
Part a (1.25 points)
Calculate the premium development to loss development (PDLD) ratios for the first and second premium adjustments.
Part b (0.5 points)
Briefly explain two benefits of using the retrospective rating formula method over using historical data when calculating the PDLD ratio.
Part c (0.75 points)
Assuming all claims are greater than the plan minimum, explain how a push to settle small claims faster would impact PDLD ratios.
Answer this question and see the worked solution