CAS Exam 8 Fall 2017, Question 7
Study guide: Exam 8
Given the following information:
- Allocated loss adjustment expense is 15% of the indemnity amount.
- The variance method has been selected to include a risk load in the Increased Limits Factors (ILFs) with
k = 0.000064and\delta = 0.
Limit, l |
E[X;l] |
E[X^2:l] |
|---|---|---|
| 1,000 | 840 | 790,123 |
| 5,000 | 2,485 | 9,467,456 |
Part a (1 point)
Calculate the following:
- The risk loads for each limit.
- The ILF with and without risk load for the 5,000 limit.
Part b (0.75 points)
Assuming portfolio weights of 75% for a 1,000 limit and 25% for a 5,000 limit, determine the overall impact on premium by using the ILFs with the risk loads instead of the ILFs without risk loads.
Answer this question and see the worked solution