CAS Exam 8 Fall 2014, Question 5
Study guide: Exam 8
The following data shows the experience of a merit rating plan for a specific state.
| Number of Accident-Free Years | Earned Car Years | Earned Premium ($000) | Number of Incurred Claims |
|---|---|---|---|
| 3 or More | 250,000 | 250,000 | 1,200 |
| 2 | 300,000 | 100,000 | 625 |
| 1 | 25,000 | 100,000 | 750 |
| 0 | 12,000 | 150,000 | 1,500 |
| Total | 587,000 | 600,000 | 4,075 |
The base rate is $1,000 per exposure. No other rating variables are applicable.
Part a (0.5 points)
The typical exposure base used to develop the merit rating plan is earned premium. Briefly discuss two assumptions in selecting this exposure base.
Part b (1.5 points)
Calculate the ratio of credibility for an exposure with two or more years accident-free experience to one or more years accident-free experience.
Part c (0.5 points)
Calculate the premium for an exposure that is accident free for two or more years.
Answer this question and see the worked solution