CAS Exam 7 Spring 2019, Question 15
Study guide: Exam 7
Given the following information for a retrospectively rated book of business:
- Basic Premium is $25 million.
- Standard Premium is $100 million.
- Tax Multiplier is 1.03.
- Loss Conversion Factor is 1.18.
- Expected Loss Ratio is 0.8.
| Retro Adjustment Period | Incremental Loss Capping Ratio | Age-to-Ultimate Loss Development Factor |
|---|---|---|
| 1st | 0.95 | 2.00 |
| 2nd | 0.75 | 1.08 |
| 3rd | 0.55 | 1.01 |
Part a (1.5 points)
Calculate the cumulative premium development to loss development (PDLD) ratio at the 1st retro adjustment.
Part b (0.25 points)
Briefly describe a different approach for estimating PDLD ratios for retrospectively rated policies.
Part c (0.5 points)
Briefly describe an advantage and a disadvantage of using the method in part a. above over the method described in part b. above.
Answer this question and see the worked solution