CAS Exam 8 Fall 2015, Question 1
Study guide: Exam 8
An actuary is evaluating a merit rating plan for private passenger cars. Given the following:
| Number of Accident-Free Years | Earned Car Years | Number of Claims Incurred |
|---|---|---|
| 2 or More | 500,000 | 20,000 |
| 1 | 200,000 | 15,000 |
| 0 | 100,000 | 9,000 |
| Total | 800,000 | 44,000 |
- Frequency varies by territory.
- State law prohibits reflecting territory differences in rating.
- Annual claims for an individual driver follow a Poisson distribution.
- Claim cost distributions are similar across all drivers.
Part a (0.5 points)
Identify one potential issue with the exposure base used. Briefly explain whether or not earned premium would be a better choice for the exposure base.
Part b (1 point)
Calculate the credibility of one driver with one or more year's accident-free experience.
Part c (1 point)
Calculate the credibility of one driver with 0 Accident-Free years.
Answer this question and see the worked solution