Actuarial Notes

Individual Risk Rating

By Ginda Kaplan Fisher, Lawrence McTaggart, Jill Petker and Rebecca Pettingell · Casualty Actuarial Society · 2019

Study guide: Exam 8

A CAS study note, dated October 31, 2019, that introduces the concepts and methods used to support excess, deductible and individual risk pricing. Its authors consolidate insights from several foundational papers, give examples beyond U.S.-based workers' compensation practice and add a few fresh insights; it covers experience rating, loss sensitive rating plans, aggregate excess loss cost estimation and cautions on pricing excess and aggregate loss.

On the syllabus

  • Exam 8 — objectives B1–B6; Version 3, October 2019.

Foreword

Chapter 1: Experience Rating

  • 1 Introduction/Definition
  • 2 Advantages of Experience Rating
  • 3 Differences within Class
  • 4 Objectives/Goals
  • 5 Equity
  • 6 Credibility
  • 7 Credibility Issues in Experience Rating
  • 8 Split Loss Plans
  • 9 Schedule Rating
  • 10 Evaluating and Comparing Plans

Chapter 2: Risk Sharing Through Retrospective Rating and Other Loss Sensitive Rating Plans

  • 1 Risk Sharing: Risk Retention and Risk Transfer
  • 2 What is Retrospective Rating?
  • 3 The Retrospective Rating Formula
  • 4 Regulatory Approval and the Large Risk Alternative Rating Option (LRARO)
  • 5 Other Loss Sensitive Plans
  • 6 Other Variations on Loss Sensitive Plans
  • 7 Credit Risk
  • 8 Setting Retention Levels
  • 9 Capital and Profit Provisions
  • 10 The Dissolution of Loss Sensitive Rating Plans for Long-Tailed Lines
  • Appendix to Chapter 2: Examples of Expected Cash Flow

Chapter 3: Aggregate Excess Loss Cost Estimation

  • 1 Overview
  • 2 Visualizing Aggregate Excess Losses
  • 3 Estimating Aggregate Loss Costs Using Table M
  • 4 Estimating Limited Aggregate Excess Loss Costs
  • 5 Other Methods of Combining Per-Occurrence and Aggregate Excess Loss Cost
  • 6 Understanding Aggregate Loss Distributions

Chapter 4: Concluding Remarks

  • 1 General Observations
  • 2 Sensitivity of Table M charges to the Accuracy of the Loss Pick or Rate Adequacy
  • 3 Consistency of Assumptions

Solutions to Chapter Questions

References

Sources