CAS Exam 8 Fall 2014, Question 20
Study guide: Exam 9
An insurer is evaluating the experience of an annual umbrella policy that is renewing on April 1, 2015.
| Item | Value |
|---|---|
| Attachment Point | $3,000,000 |
| Policy Limit | 10,000,000 |
- The insurer paid a $4,000,000 claim for a loss that occurred on July 1, 2014.
- Trend is applied to the midpoint of a prospective policy year
Part a (0.75 points)
The insurer has trended the July 1, 2014 claim to $4,395,940. Determine the insurer's annual trend factor.
Part b (0.75 points)
Explain how the upward drift of policy limits and attachment points on the underlying and umbrella policies can distort the trending of historical losses and if the trended claim would likely be overstated or understated had the loss occurred in 2004.
Answer this question and see the worked solution