Exam 7 Practice Question 1
Study guide: Exam 7
An insurer estimates the premium asset on its retrospectively rated workers compensation policies with the PDLD method. The policy effective quarters below have had their first retro adjustment but not their second. Retro adjustments are made annually, and the plans allow at most four adjustments.
- Selected PDLD ratios: 0.80 for the second adjustment period, 0.60 for the third and 0.40 for the fourth.
- Share of expected ultimate loss emerging in each period: 12% in the second, 6% in the third, 2% in the fourth, and 5% after the fourth adjustment.
- Expected loss still to emerge on these quarters: $40 million.
- Premium booked from the first retro adjustment: $150 million.
- Premium booked as of the evaluation date: $147 million, after some interim return premium.
Calculate the premium asset for these quarters, in $ millions.
- A) Less than 21.0
- B) At least 21.0, but less than 24.0
- C) At least 24.0, but less than 26.0
- D) At least 26.0, but less than 29.0
- E) At least 29.0
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