#20c
Hi, regarding part c, the solution states that LAE is not part of the basic prem, is this b/c this is a WC retro policy so we have the "PcF" term outside of the basic prem?
Hi, regarding part c, the solution states that LAE is not part of the basic prem, is this b/c this is a WC retro policy so we have the "PcF" term outside of the basic prem?
Comments
No. The basic premium is meant to cover fixed charges which do not vary with losses. Since the claim adjustment expenses incurred will depend on the volume and nature of the actual claims, we can't reasonably produce a prospective fixed charge for the LAE, so LAE is not included in the basic premium, B. Instead, we incorporate LAE through the loss conversion factor, c which loads the ratable losses for LAE.