CAS Exam 8 Fall 2016, Question 13
Study guide: Exam 8
A risk is written using a retrospective rating plan with the following characteristics:
| Characteristic | Value |
|---|---|
| Standard Premium | $10,000,000 |
| Expected Loss Ratio | 60% |
| Loss Ratio at Maximum Premium | 80% |
| Loss Ratio at Minimum Premium | 20% |
| Loss Conversion Factor | 1.085 |
| Provision for Losses and Total Expenses Exclusive of Taxes | 0.97 |
The following Lee Diagram depicts actual experience from a sample of similarly-sized risks and similar to the risk in question:
Part a (1.25 points)
Determine the converted insurance charge for this plan.
Part b (1.25 points)
The insured's actual ultimate losses are $8,700,000 and the final retrospective premium is $12,500,000. Determine the tax multiplier that was used in the rating of this plan.
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