CAS Exam 8 Fall 2019, Question 14
Study guide: Exam 8
An insured is written under a retrospective rating plan with a minimum and a maximum premium with the following parameters:
| Loss Conversion Factor | 1.07 |
|---|---|
| Expected Loss | $825,000 |
| Expenses | $20,000 |
\varphi(r_G) |
0.40 |
\varphi(r_H) |
0.80 |
r_G |
1.21 |
r_H |
0.50 |
Part a (1 point)
Calculate the basic premium.
Part b (1 point)
Upon renewal, the insured requests that a per occurrence claim limit of $200,000 be added to the current policy. The pricing actuary estimates that, on average, the insured will have $400,000 of losses that exceed this per occurrence limit during the next policy period. To calculate the expected increase to the basic premium, the actuary loads the $400,000 for expenses and profit.
Fully discuss the appropriateness of the actuary's methodology.
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