CAS Exam 8 Fall 2017, Question 3
Study guide: Exam 8
The following data shows the experience of a merit rating plan for private passenger vehicles. The merit rating plan uses multiple rating variables, including territory.
| Number of Accident-Free Years | Earned Car Years (000s) | Earned Premium ($000s) | Number of Incurred Claims |
|---|---|---|---|
| 5 or More | 250 | 500,000 | 15,000 |
| 3 and 4 | 100 | 90,000 | 13,500 |
| 1 and 2 | 80 | 60,000 | 8,000 |
| 0 | 70 | 50,000 | 10,500 |
| Total | 500 | 700,000 | 47,000 |
| Territory | Frequency | Average Premium |
|---|---|---|
| A | 0.05 | 1,500 |
| B | 0.10 | 2,000 |
| C | 0.15 | 1,250 |
Part a (0.75 points)
Recommend and justify an exposure base for this merit rating plan.
Part b (0.75 points)
Calculate the relative credibility of an exposure that has been three or more years accident-free using the exposure base from part (a) above.
Answer this question and see the worked solution