CAS Exam 8 Fall 2015, Question 12
Study guide: Exam 8
An actuary is evaluating the effectiveness of an experience rating plan and has calculated the following values:
| Risk size | Standard Loss Ratio: Risks with credit mod | Standard Loss Ratio: Risks with debit mod | Sample Variance in Loss Ratios: Unmodified | Sample Variance in Loss Ratios: Modified |
|---|---|---|---|---|
| Small | 1.05 | 1.08 | 0.07 | 0.008 |
| Medium | 0.98 | 0.96 | 0.05 | 0.004 |
| Large | 0.99 | 1.00 | 0.04 | 0.004 |
Part a (0.5 points)
Evaluate whether this plan satisfies the necessary condition for proper credibility.
Part b (0.5 points)
Determine which risk size has the most accurate experience rating based on the efficiency test.
Part c (0.5 points)
It has been determined that premiums are inadequate for small risks. Discuss whether premium inadequacy is better corrected by changing the manual rates or the experience rating plan.
Answer this question and see the worked solution