CAS Exam 8 Fall 2015, Question 11
Study guide: Exam 8
An underwriter and an actuary are discussing the effectiveness of the current experience rating plan. The following table contains experience from five experience rated risks (all of similar size):
| Risk | Manual Premium | Modified Premium | Actual Losses |
|---|---|---|---|
| 1 | 400,000 | 360,000 | 300,000 |
| 2 | 600,000 | 840,000 | 690,000 |
| 3 | 800,000 | 560,000 | 440,000 |
| 4 | 900,000 | 1,080,000 | 860,000 |
| 5 | 1,000,000 | 800,000 | 650,000 |
Part a (1.5 points)
Evaluate whether the experience rating plan is effective or not and explain why.
Part b (1 point)
The underwriter argues that the modification factor for risk 4 is too high. Propose two additional pieces of information the actuary could request regarding risk 4 in order to support or disprove the underwriter's argument and explain why the information would be useful.
Answer this question and see the worked solution