CAS Exam 8 Fall 2015, Question 19
Study guide: Exam 8
An actuary has priced a large dollar deductible policy using the information given below and has indicated a premium of $273,500. Assume no collateral is held on behalf of the insured.
| Item | Value |
|---|---|
| Standard Premium | 1,000,000 |
| Ground-up Expected Loss and ALAE Ratio | 65% |
| Excess Ratio (% of Total Loss and ALAE) | 10% |
| ULAE Load (% of Total Loss and ALAE) | 8% |
| General Expenses (% of Standard Premium) | 5% |
| Credit Risk Load (% of Standard Premium) | X% |
| Acquisition Expenses (% of Net Premium) | 5% |
| Taxes (% of Net Premium) | 7% |
| Profit and Contingencies (% of Net Premium) | 5% |
Part a (1 point)
Calculate X, the implied Credit Risk Load in the actuary's indicated premium.
Part b (0.5 points)
Explain why profit loads can be higher for large dollar deductible policies compared to excess policies.
Answer this question and see the worked solution