Exam 8 Practice Question 11
Study guide: Exam 8
An actuary is building a pricing model for loss-sensitive workers compensation plans. Expected losses come from the company's own loss-only estimates, which exclude loss adjustment expense. The per-occurrence excess losses come from applying a rating bureau's excess factors, which are ratios to the bureau's pure premium, to those estimates. The aggregate excess losses come from the company's own model.
As a check, the actuary adds the predicted primary, per-occurrence excess and aggregate excess losses for a range of plans and accounts. The sums come out consistently below the predicted total losses for those accounts.
Which response is most appropriate?
- A) Accept the result, because layered estimates are not expected to add back to the total
- B) Scale the primary losses up until each account's parts add back to its total
- C) Raise the aggregate excess losses, because the aggregate model is the company's own
- D) Check if the bureau pure premium carries items, like LAE, missing from the loss estimate
- E) Replace the company's expected losses with the bureau's pure premium for every account
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