CAS Exam 8 Fall 2013, Question 8
Study guide: Exam 8
Given the following information for a general liability policy, determine the value of X that yields an experience modification of +4.5%.
- Effective period of the policy: January 1 to December 31, 2014.
- Expected loss ratio: 65.6%.
- Type of policy being rated: Claims-made.
Loss Experience
| Policy period | Type of Policy | Includable Losses in Experience Period (Limited by MSL) |
|---|---|---|
| January 1, 2012, to December 31, 2012 | Claims-made | X |
| January 1, 2011, to December 31, 2011 | Occurrence | $72,234 |
| January 1, 2010, to December 31, 2010 | Occurrence | $30,484 |
| Total | $102,718 + X |
| Policy Period | Coverage | Company Subject Loss Cost |
|---|---|---|
| Latest Policy Year | Prem/Ops | $32,160 |
| Products | $6,679 | |
| Prior Policy Year | Prem/Ops | $42,832 |
| Products | $14,137 | |
| Next Prior Policy Year | Prem/Ops | $38,695 |
| Products | $13,327 | |
| Total | $147,830 |
| Subject Loss Cost | Credibility | Expected Experience Ratio | Maximum Single Loss |
|---|---|---|---|
| $138,763 - $145,183 | 0.33 | 0.866 | $109,200 |
| $145,184 - $151,800 | 0.34 | 0.870 | $111,400 |
| $151,801 - $158,621 | 0.35 | 0.874 | $113,700 |
| $158,622 - $165,658 | 0.36 | 0.878 | $116,050 |
| $165,659 - $172,920 | 0.37 | 0.882 | $118,450 |
Loss Development Factors
| Subline | Latest Policy Year | Prior Policy Year | Next Prior Policy Year |
|---|---|---|---|
| Prem/Ops | 0.519 | 0.338 | 0.198 |
| Products | 0.766 | 0.637 | 0.528 |
Part a (2.75 points)
Answer this question and see the worked solution