CAS Exam 8 Fall 2016, Question 12
Study guide: Exam 8
An actuary is given the following sample of experience from a grouping of five similarly-sized risks:
| Risk | Actual Loss | Risk | Actual Loss |
|---|---|---|---|
| 1 | $85,000 | 4 | $63,750 |
| 2 | $127,500 | 5 | $106,250 |
| 3 | $42,500 |
Part a (1.5 points)
Construct a Table M of insurance charges and savings at entry ratios of 0 to 1.50 in multiples of 0.25.
Part b (0.25 points)
Briefly describe what the insurance charge at an entry ratio of 1.25 reflects.
Part c (0.75 points)
Suppose the Table M constructed above is used to price a book of Worker's Compensation retrospectively rated business. The following table of actual losses reflects the experience of this book:
| Risk | Actual Loss | Risk | Actual Loss |
|---|---|---|---|
| 1 | $12,000 | 4 | $106,250 |
| 2 | $42,500 | 5 | $275,000 |
| 3 | $63,750 |
Evaluate the appropriateness of using the Table M constructed in part a. above. Provide two reasons in support of the conclusion.
Answer this question and see the worked solution