CAS Exam 8 Fall 2014, Question 19
Study guide: Exam 8
A company is considering options for a workers compensation policy with the following parameters:
| Item | Value | Applicable to: |
|---|---|---|
| Standard Premium | $1,000,000 | |
| Expected Loss and ALAE | 900,000 | |
| Per Occurrence Deductible | 250,000 | Loss and ALAE |
| Aggregate Limit | 1,000,000 | Loss and ALAE |
| ULAE | 7.0% | Loss and ALAE |
| Loss Based Assessment | 5.0% | Loss and ALAE |
| General Overhead | 5.0% | Standard Premium |
| Credit Risk | 4.0% | Standard Premium |
| Acquisition Expense | 5.0% | Net Premium |
| Profit and Contingency | 2.5% | Net Premium |
| Tax and Assessment | 8.0% | Net Premium |
| Limit | ELPPF |
|---|---|
| $250,000 | 0.20 |
| 500,000 | 0.09 |
| 750,000 | 0.06 |
| 1,000,000 | 0.03 |
| Entry Ratio | Insurance Charge |
|---|---|
| 1.11 | 0.18 |
| 1.25 | 0.13 |
| 1.39 | 0.09 |
| 1.50 | 0.06 |
Part a (1 point)
Calculate the premium for a large dollar deductible (LDD) policy.
Part b (0.75 points)
Identify three reasons why an employer might choose an LDD Plan.
Part c (0.5 points)
Assume the following revised assumptions for an excess workers compensation (WC) policy:
- Profit and Contingency = -1.5%
- Tax and Assessment = 3%
Calculate the revised premium.
Part d (0.5 points)
Describe the difference in profit and tax assumptions for LDD and excess WC policies.
Answer this question and see the worked solution