CAS Exam 8 Fall 2016, Question 9
Study guide: Exam 8
An actuary and an underwriter are discussing a Worker's Compensation book of business.
Part a (0.5 points)
The underwriter is considering not renewing a risk in the book because the experience modifier of the account has increased. The underwriter notes that the expected loss ratio (ELR) for the predominant class code on the account has decreased over the last three years. Discuss whether the underwriter should non-renew the risk given the change in ELR.
Part b (0.5 points)
A different account had large losses last year and now has a debit modification. The underwriter wants to renew this account since the debit mod will help recoup losses. Evaluate the underwriter's reasoning to renew the account.
Part c (0.5 points)
The underwriter points out that the book of business has an overall experience modifier below 1.0 and believes this is due to superior risk selection. Provide two reasons why this may not be the case.
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