CAS Exam 7 Spring 2018, Question 17
Study guide: Exam 7
Given the following information for a retrospectively rated book of business:
| Policy Effective Year | Ultimate Loss | Losses Reported at Prior Retro Adjustment | Premiums Booked from Prior Adjustment | Premiums Booked as of December 31, 2017 |
|---|---|---|---|---|
| 2014 | $226,500 | $202,000 | $335,000 | $337,000 |
| 2015 | $225,000 | $180,500 | $330,000 | $335,000 |
| 2016 | $200,000 | 0 | 0 | $210,000 |
| 2017 | $80,000 | 0 | 0 | $215,000 |
| Retro Adjustment Period | Selected PDLD Ratio | Selected CPDLD Ratio | Percentage of Ultimate Loss Reported |
|---|---|---|---|
| First | 1.75 | ??? | 78.5% |
| Second | 0.70 | 0.59 | 10.0% |
| Third | 0.55 | 0.49 | 7.0% |
| Fourth | 0.45 | 0.40 | 4.0% |
| Subsequent | 0.00 | 0.00 | 0.5% |
- Retro premium is booked 24 months after policy effective dates.
Part a (1.25 points)
Calculate the premium asset as of December 31, 2017.
Part b (1 point)
Describe two reasons why the selected PDLD ratios decrease as the retro adjustment period increases.
Answer this question and see the worked solution