2014 Fall - Q9
For this question, I would have assumed E(primary) = 10,000 (since 10K is the split point) and calculated E(excess) as E(Total) - E(primary).
Since none of the suggested solutions used that approach, I'm wondering whether this is wrong and I get the right answer because I'm lucky :D :D.
Comments
Hi,
In this case you got lucky... It's possible a risk could be expected to have only primary losses and no excess losses, so Ep would be less than the split point and Ee would be 0.
The CAS solutions to this question show how much the Exam 8 readings have changed over time. The first solution is the one which aligns best with the Fisher text. The key to cracking the question is to ask yourself what information is needed in the experience modification formula but isn't explicitly given. In this case it's Ep and Ee.
From there, the only piece of information that seems unneeded at first glance is the loss-free modification. We have to remember this means Ap=Ae=0 so we're left with a formula using Ep and Ee which are what we need to find. Using E=Ep+Ee then allows us to solve for the missing info before circling around to reapply the formula to finally get the answer.
The third CAS solution shows how you could get a different answer if you clearly stated you assumed this was an Alabama risk. (As of 2021, only tables for AL are given in the NCCI Experience Rating reading.)
I tried to use the formula below, which I feel like was written in the article as being equivalent to the one used in the solution. But I am not getting the correct answer. Could you help me figure out what I am doing wrong?
M = 1 + Z_p*((A_p - E_p)/E_p) + Z_e*((A_e - E_e)/E_e)
Thanks for any help you can provide!
Nvm, I just realized that E should be in the denominator within each parentheses rather than E_p and E_e