CAS Exam 8 Fall 2019, Question 16
Study guide: Exam 8
The loss experience of five similarly sized risks is shown in the table below:
| Risk | Aggregate Unlimited Loss | Aggregate Limited Loss |
|---|---|---|
| 1 | 30,000 | 30,000 |
| 2 | 95,000 | 60,000 |
| 3 | 110,000 | 90,000 |
| 4 | 160,000 | 60,000 |
| 5 | 415,000 | 360,000 |
| Total | 810,000 | 600,000 |
Limited losses have a per-occurrence limit of 50,000 applied.
Part a (1.5 points)
Construct a Limited Loss Table M based on the experience above, displaying entry ratios ranging from 0 to 3 in increments of 0.5 and the corresponding insurance charges.
Part b (1.5 points)
An insured similar to the risks above is evaluating three potential policies:
- A guaranteed cost policy
- A large dollar deductible policy with a 50,000 per-occurrence limit
- A retrospectively rated policy with an underlying 200,000 aggregate limit and no per-occurrence limit
Given the following:
- The insured would like to minimize cost
- Maintaining a stable, predictable cash flow is a priority for the insured
- The insured has recently implemented a successful claim severity reduction program
Briefly discuss one advantage and one disadvantage of each of the three policies from the perspective of this insured.
Answer this question and see the worked solution