CAS Exam 8 Fall 2013, Question 10
Study guide: Exam 8
An actuarial analyst has experience rated five groups of policies under the current rating plan and two alternatives, Plan A and Plan B. The results are as follows:
| Risks with | Manual Premium ($000) | Manual Loss Ratio: Current Plan | Manual Loss Ratio: Proposed Plan A | Manual Loss Ratio: Proposed Plan B | Standard Loss Ratio: Current Plan | Standard Loss Ratio: Proposed Plan A | Standard Loss Ratio: Proposed Plan B |
|---|---|---|---|---|---|---|---|
| Lowest mod | $50,000 | 0.70 | 0.70 | 0.70 | 1.03 | 0.97 | 0.89 |
| Next lowest | $70,500 | 0.85 | 0.80 | 0.90 | 1.02 | 1.02 | 0.92 |
| Middle | $98,000 | 1.05 | 1.05 | 1.05 | 0.98 | 0.96 | 0.93 |
| Next highest | $150,000 | 1.20 | 1.15 | 1.15 | 0.97 | 1.02 | 1.06 |
| Highest mod | $10,000 | 1.45 | 1.55 | 1.35 | 0.96 | 1.06 | 1.11 |
Part a (0.75 points)
The off-balance factor for the current plan is 1.05 and for proposed Plan A is 0.99. The analyst says that proposed Plan A performs better because the off-balance is less than 1. Critique this statement.
Part b (0.75 points)
The actuarial analyst recommends staying with the current plan because it has made the higher mod groups more attractive to write and it has the least standard loss ratio spread. Critique this reasoning.
Answer this question and see the worked solution