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Hi,
It's important to remember whose perspective we're rating from and what data is available. We're rating using the reinsurer perspective using data from the primary insurer. So the subject premium is GNEPI (or GNWPI), i.e. the primary in…
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Hi,
In both cases the reinsurer expected loss and ALAE is determined by: exposure factor * (expected loss and ALAE ratio) * subject earned premium.
Where differences arise is how you calculate the ground-up expected loss and ALAE rati…
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Under the "Policy Characteristics" we're told there is a per-occurrence limit and an aggregate deductible. This means we need to price using either the Limited Table M approach or Table L approach.
Generally speaking you can choose which m…
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Great question and comment thank you. Remember, a rectangle is a special case of a trapezoid where the two parallel sides have equal length.
Also recall the vertical slicing method gets the exact answer because it forces you to consider ev…
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This is a good example of the CAS writing a question where they intended candidates to answer in a particular way but left a shortcut available.
Yes, Model 1 is equivalent to Model 2. However, note you must have a balanced retrospective rat…
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Hi,
We prefer to leave our Excel files protected as one of the benefits is it more closely reflects the Pearson VUE exam environment. We want our users to feel at ease within the Pearson environment on exam day.
We are not attempting …
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Great question and it really depends on the context. In general it's appropriate to roll into the base level so if "trucks" are being eliminated and "cars" is the base level then you could recode all trucks to read "cars" and proceed. Or you coul…
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We're given information about an industry experience rating plan, i.e. one that could be adopted by many insurers in the market place.
First we need to explain how the incorrect credibilities impact both large and …
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This is a good example of the CAS making an easy question challenging through burying the important details in words.
We're given claim frequencies for "bodily injury liability coverage" which implies the insured has a current auto…
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Yes, that's the case. Retrospective rating without any limits allows the insurer to potentially bill or reimburse large amounts of premium depending on if the insured has poor or good experience. By including a per-occurrence limit or deductible …
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It's helpful to think about who is paying for the losses in this situation.
An LDD plan has the insurer paying the losses above the deductible and seeking reimbursement for the deductible losses from the insured. A retro plan has the insure…
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You are correct. With the change in how the NCCI produces its retrospective rates (now using the NCCI Circular) we aren't given enough information in this problem to find psi(r_G) and psi(r_H). That's why we added the values used in the examiner'…
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The question is still valid I'm afraid. It's a good application of the balance equations.
The figures you're asking about are the result of switching from working with entry ratios to working with loss ratios. Notice 1.65 = 165% which is th…
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Here's the general philosophy I use with this type of pricing:
- Who pays what? For example, does the insurer pay everything and then seek recovery? If there's the potential to recover then we have credit risk.
- Who is doing the s…
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Splitting hairs here. You're correct that the order (or degree) of a polynomial refers to its highest power. However, by referring to a polynomial we're implicitly allowing all lower order terms to be included else we would refer to the monomial …
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This is another great example of the CAS regularly changing the syllabus readings so they no longer match the past exam papers they've released.
According to the Fisher reading in the 2021 syllabus, the basic premium includes both the expec…
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An nth degree polynomial is of the form a_0 + a_1*x + a_2*x^2 + ... + a_n*x^n. So a second degree polynomial requires 3 coefficients. However, we only gain two additional degrees of freedom because we already have an intercept term in the GLM. Th…
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I think the graders would penalize you for using VAR.S() if the question is worth a significant amount of points and there's clearly non-uniform weights such as manual premium or TT counts etc. Otherwise, I think it would be okay…
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Great question - the sample answer is definitely scant on some pretty important points.
I'll assume you're fine with part a.
You are correct that there aren't handy equations for getting the maximum and minimum premiums (G and H). The…
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We reviewed the NCCI circular extract provided in the study kit and this is how they presented it. That said, we definitely share your concern about potentially double counting LAE. We think it is okay and that the excess loss factor loss adjustm…
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Bahnemann Section 2.4 (p. 53) provides these formula. I've put them below for your convenience.
I believe this is a matter of presentation rather than substance because we're used to thinking about the size of losses and how they change, but we're not as used to thinking in terms of changes in the cumulative distribution. It's rather like w…
In your set up you are asking for the probability of the reinsurer returning excess profit to the primary insured. However, the question is asking for the probability that the reinsurer does not make a profit.
Notice this is not as straight…
The CAS didn't provide the necessary tables for the NCCI reading in the study kit for this sitting. They haven't provided any guidance as far as we know on what candidates are supposed to do. It seems reasonable to expect they would have to give …
We're told we have a 25% quota share treaty which applies to 10m of subject premium. So the ceded premium is 2.5m. We're also told the ceding commission is 20%, so the reinsurer premium net of ceding commission is 2m = 2.5m - 2.5m*20%.
The …
We're both perhaps guilty of complicating this problem. The solution depends on keeping track of the perspective (primary insurer, quota share reinsurer, XoL reinsurer etc.)
Let's assume we have a 20m loss
The 40% quota share inures t…
We're glad you found the exercise helpful; it's certainly a great way to strengthen your understanding in readiness for the IQ problems and situations you'll encounter in your day to day work.
This is an interesting question thanks. From what I can tell your approach to re-basing in terms of the expected limited distribution works. My question is why would you want to do this given we already have the Table L approach - does this add a…
