CAS Exam 8 Fall 2015, Question 17
Study guide: Exam 8
An actuary prices a retrospectively rated policy based on the assumption that aggregate losses follow a uniform distribution between $0 and $1,000,000. The actuary determines that the following provisions result in a balanced plan:
| Provision | Value |
|---|---|
| Standard premium | $700,000 |
| Loss at minimum premium | $80,000 |
| Loss at maximum premium | $750,000 |
| Basic premium | $83,660 |
| Loss conversion factor | 1.2 |
Assume there are no taxes.
Part a (1.5 points)
Calculate the implicit premium discount associated with the plan.
Part b (0.5 points)
Briefly describe how premium discount is treated in a retrospectively rated policy compared to a guaranteed cost policy.
Answer this question and see the worked solution