CAS Exam 8 Fall 2015, Question 23
Study guide: Exam 9
An actuary is pricing the $9,000,000 excess of $1,000,000 layer for an excess of loss policy. Total insured value of the properties is $10,000,000. Historical information for this policy is as follows:
| Accident Year | Excess Loss Development Factor | On-Level Trended Premium |
|---|---|---|
| 2012 | 1.01 | $5,200,000 |
| 2013 | 1.05 | $5,700,000 |
| 2014 | 1.10 | $5,900,000 |
| Accident Date | Actual Ground-Up Loss | Trend Factor | Trended Losses |
|---|---|---|---|
| July 18, 2012 | $3,500,000 | 1.10 | $3,850,000 |
| February 12, 2013 | $2,000,000 | 1.08 | $2,160,000 |
| August 15, 2013 | $1,000,000 | 1.07 | $1,070,000 |
| March 3, 2014 | $3,000,000 | 1.04 | $3,120,000 |
| November 2, 2014 | $920,000 | 1.01 | $929,200 |
The exposure curve below applies to the insured risk:
| % of Insured Value | Exposure Factor |
|---|---|
| 10% | 30% |
| 20% | 41% |
| 30% | 52% |
| 40% | 63% |
| 50% | 71% |
| 60% | 75% |
| 70% | 80% |
| 80% | 84% |
| 90% | 89% |
| 100% | 90% |
| 120% | 100% |
Calculate the policy's loss cost as a percentage of premium.
Part a (2.5 points)
Answer this question and see the worked solution