CAS Exam 8 Fall 2019, Question 3
Study guide: Exam 8
An insurance company has a private passenger auto book of business with an experience modification factor in its rating plan.
Given the following:
- Annual claims for an individual driver follow a negative binomial distribution with
r = 10. - The expected claim frequency for the entire book of business is 0.101.
- The credibility for the group of risks that have had at least one accident in the last year is 0.02.
Part a (1.25 points)
Calculate the experience modification factor for a policy that has had at least one accident in the last year.
Part b (0.5 points)
Describe why a class with a higher volume of claims and more exposures may have less credibility than a class with fewer claims and exposures.
Answer this question and see the worked solution