CAS Exam 8 Fall 2018, Question 10
Study guide: Exam 8
An actuary is analyzing an experience rating plan using three years of experience that has the following information:
| Policy effective date | January 1, 2019 |
|---|---|
| Policy term | One Year |
| Annual loss trend | 2% |
| Cap for individual claims | 100,000 |
| Credibility factor | 0.60 |
| Expected ultimate loss before modification | 500,000 |
Reported Losses on Individual Claims by Policy Year as of June 30, 2018:
| 2015 | 2016 | 2017 | 2018 |
|---|---|---|---|
| 3,450 | 2,389 | 456 | 5,694 |
| 5,000 | 345 | 126,890 | 99,832 |
| 234 | 1,236,806 | 2,345 | 76,532 |
| 98,000 | 1,874 | ||
| 324,789 | 690 | ||
| 26,986 |
The actuary has determined limited loss development factors (LDFs) and limited expected values using aggregate data from similar policies as follows:
| Maturity to Ultimate | Limited LDFs |
|---|---|
| 18 months | 1.50 |
| 30 months | 1.23 |
| 42 months | 1.20 |
| Limit | Limited Expected Value |
|---|---|
| 100,000 | 17,500 |
| 500,000 | 28,567 |
| 1,000,000 | 43,393 |
| Unlimited | 85,504 |
Part a (1.25 points)
Calculate the expected reported losses for this plan for the three years of experience combined.
Part b (1 point)
Calculate the experience modification factor for this policy.
Answer this question and see the worked solution