CAS Exam 8 Fall 2012, Question 10
Study guide: Exam 9
An actuary has calculated an exposure curve using 10 years of the company's historical commercial property data, comprised of the following portfolio. All insured values used to calculate the exposure curve are on a per location basis.
| Insured Value Range | Number of Risks | Total Premium | Pure Premium per Location |
|---|---|---|---|
| $500,000 – $1,000,000 | 415 | $23,810,000 | $34,539 |
| $1,000,001 – $2,500,000 | 650 | $90,400,000 | $80,665 |
| $2,500,001 – $5,000,000 | 350 | $92,970,000 | $172,659 |
| $5,000,001 – $10,000,000 | 180 | $94,199,600 | $345,399 |
Part a (1 point)
Evaluate the actuary's decision to use this book of business to produce an exposure curve.
Part b (1 point)
The actuary is considering using the exposure curve to price a commercial property excess of loss treaty. The actuary is given the following information:
- A per risk limits profile for the subject commercial property business
- Ten years of historical ultimate loss ratios for the commercial property business:
| Year | Ultimate Loss Ratio |
|---|---|
| 2011 | 120% |
| 2010 | 40% |
| 2009 | 90% |
| 2008 | 15% |
| 2007 | 150% |
| 2006 | 30% |
| 2005 | 75% |
| 2004 | 10% |
| 2003 | 105% |
| 2002 | 60% |
Evaluate the actuary's decision to use the exposure curve to price the treaty.
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