CAS Exam 8 Fall 2012, Question 22
Study guide: Exam 8
The current deductible pricing for an auto insurer is based on the following claim distribution:
| Size of Loss | Number of Claims |
|---|---|
| $100 | 21 |
| $250 | 50 |
| $500 | 42 |
| $1,000 | 37 |
| $5,000 | 22 |
An actuary wants to review the effect of loss trend on the insurer's loss elimination ratios.
Part a (1 point)
Calculate the loss elimination ratio for a straight $500 deductible assuming no trend adjustment.
Part b (1.5 points)
Assuming no frequency trend, calculate the percentage change in the loss elimination ratio for a straight $500 deductible assuming a ground-up loss severity trend of 10%.
Part c (0.5 points)
Explain why the loss cost for a given straight deductible policy can increase by more than the ground-up severity trend.
Answer this question and see the worked solution