CAS Exam 8 Fall 2012, Question 16
Study guide: Exam 8
An actuary has experience rated five policies and presented the resulting modification factors to the underwriter. The results are as follows:
| Policy | Experience Mod Factor | Manual Premium | Losses |
|---|---|---|---|
| A | 0.97 | $40,000 | $39,000 |
| B | 1.40 | $10,000 | $14,500 |
| C | 0.95 | $25,000 | $23,500 |
| D | 1.33 | $15,000 | $20,500 |
| E | 0.81 | $45,000 | $33,000 |
Part a (0.5 points)
The underwriter targets Policies B and D and states they should not be written because they are undesirable risks. Evaluate the validity of this statement.
Part b (1 point)
Calculate the experience rating off-balance for these five risks.
Part c (1 point)
Assess whether the plan used to calculate the experience modification factors demonstrates premium equity.
Answer this question and see the worked solution