CAS Exam 8 Fall 2014, Question 18
Study guide: Exam 8
An actuary prices a retrospectively rated policy with the following provisions resulting in a balanced plan:
| Provision | Value |
|---|---|
| Minimum premium | 17,500 |
| Maximum premium | 80,000 |
| Expense provision | 8,125 |
| Loss conversion factor | 1.25 |
- Aggregate losses follow a uniform distribution between $0 and $100,000
- No taxes
After pricing the policy, the actuary discovers an error in the original loss distribution and determines that losses should instead follow a uniform distribution between $0 and $90,000. The actuary decides to re-balance the plan based on the corrected distribution while still maintaining the same minimum and maximum premium.
Calculate the loss at minimum premium and loss at maximum premium that re-balance the plan.
Part a (2.5 points)
Answer this question and see the worked solution