CAS Exam 8 Fall 2018, Question 3
Study guide: Exam 8
An insurance company has a private passenger auto book of business with the following claims experience:
| Group | Number of Accident-Free Years | Earned Premiums | Current Merit Rating Factor | Number of Claims Incurred |
|---|---|---|---|---|
| A | 3 or more | 216,000,000 | 0.60 | 25,000 |
| X | 2 | 135,000,000 | 0.75 | 18,000 |
| Y | 1 | 63,750,000 | 0.85 | 20,000 |
| B | 0 | 200,000,000 | 1.00 | C |
| Total | 614,750,000 | 63,000 + C |
- Claim counts follow a Poisson distribution with parameter
\lambda = 0.05. - The credibility for the new policy period for an insured that has had no claim-free years is equal to 0.038.
Part a (1.5 points)
Calculate C, the number of claims incurred for Group B.
Part b (0.75 points)
Calculate the merit rating factor for an exposure that is accident-free for two or more years for the new policy period.
Part c (0.5 points)
Briefly explain two circumstances under which using earned premium as the exposure base would not correct for maldistribution.
Answer this question and see the worked solution