CAS Exam 8 Fall 2013, Question 19
Study guide: Exam 8
The following information is available for a LDD policy:
| Item | Value |
|---|---|
| Standard premium | $1,500,000 |
| Expected ultimate loss ratio | 0.75 |
| State hazard group relativity | 1.1 |
| Deductible | $200,000 |
| Excess loss factor | 0.21 |
| Aggregate limit on deductible | $1,000,000 |
The following Table M information is applicable to this policy:
| Expected Loss Group | Range Rounded Values |
|---|---|
| 30 | $600,001 – $750,000 |
| 29 | $750,001 – $925,000 |
| 28 | $925,001 – $1,100,000 |
| 27 | $1,100,001 – $1,300,000 |
| 26 | $1,300,001 – $1,600,000 |
| 25 | $1,600,001 – $1,950,000 |
| 24 | $1,950,001 – $2,200,000 |
| Entry Ratio | Expected Loss Group 30 | 29 | 28 | 27 | 26 | 25 | 24 |
|---|---|---|---|---|---|---|---|
| 0.75 | 0.4069 | 0.3989 | 0.3911 | 0.3833 | 0.3755 | 0.3677 | 0.3599 |
| 0.81 | 0.3777 | 0.3690 | 0.3605 | 0.3521 | 0.3436 | 0.3352 | 0.3267 |
| 1.07 | 0.2764 | 0.2661 | 0.2557 | 0.2453 | 0.2349 | 0.2245 | 0.2141 |
| 1.15 | 0.2522 | 0.2417 | 0.2310 | 0.2203 | 0.2096 | 0.1989 | 0.1882 |
| 1.23 | 0.2347 | 0.2241 | 0.2134 | 0.2027 | 0.1920 | 0.1813 | 0.1706 |
| 1.53 | 0.1690 | 0.1583 | 0.1476 | 0.1369 | 0.1261 | 0.1154 | 0.1047 |
Part a (2.25 points)
Calculate the expected loss costs for the policy using the Insurance Charge Reflecting Loss Limitation (ICRLL) procedure.
Part b (1 point)
Explain why the ICRLL procedure produces reasonably accurate insurance charges.
Answer this question and see the worked solution