CAS Exam 8 Fall 2016, Question 6
Study guide: Exam 8
An actuary has constructed a three-variable Tweedie GLM with a log-link function to estimate loss ratios for commercial property new business. The actuary wants to create a second model for renewal business that will include all of the variables from the new business model, plus a variable for the prior year claim count. The actuary requires that the coefficients of the variables (Average Building Age, log(Manual Premium), and Location Count) are consistent between the new and renewal models. The fitted new business model parameters are as follows:
| Variable | Name | Estimate |
|---|---|---|
| intercept | 0.910 | |
| Average Building Age (Years) | age | 0.013 |
| log(Manual Premium) | logprem | -0.187 |
| Location Count | loccnt | 0.062 |
Part a (0.75 points)
Calculate the modeled loss ratio for a new business policy with a manual premium of $25,000, an average building age of four years, and having eight locations.
Part b (0.75 points)
Briefly describe how to produce the renewal business model, and specify the resulting equation for the renewal business modeled loss ratio.
Part c (1 point)
Identify and briefly describe two techniques that the actuary can use to assess the stability of the new variable in the renewal business model.
Answer this question and see the worked solution