{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Term Test 1_solutions

Term Test 1_solutions - ACTUARIALSCIENCE462/862 TERMTEST#1...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
UNIVERSITY OF WATERLOO ACTUARIAL SCIENCE 462/862 TERM TEST #1 TUESDAY JANUARY 31, 2012 (2) 1. Based on the following information, calculate the company’s expected profit provision (i.e. as a percent of premium): Expected loss ratio = 60% Expected loss adjustment expenses = 15% of expected losses Operating expense ratio (OER) = 25% of premium Solution: Expected loss and loss adjustment ratio = 60% x 1.15 = 69% Combined Ratio = Loss Ratio + OER + Profit For equation to be in balance, combined ratio = 1 Therefore, Profit = 1 – Loss Ratio – OER = 1 – .69 – .25 = 6% Alternative solution: Assume OER include LAE ratio Therefore, Profit = 1 – Loss Ratio – OER = 1 – .6 – .25 = 15% {See lecture #1, slide 14 Æ went through example in class} (5) 2. A company has the following rating structure: Policy premium = Base Rate x Territory Factor + Policy Fee Base Rate = $1,000 Policy Fee = $50 Territory Factors: Policies written: On April 1, the Base Rate is changed to $1,100 Territory Factor 11 . 0 21 . 5 # of Policies Written Date Written Territory 1 Territory 2 Jan 1, 2012 10 15 Jul 1, 2012 12
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
a) Calculate the 2012 Earned Premium for this company. b) Calculate the 2012 on level factor that can be used for rate making. Solution: Picture not necessary but will find it helpful to draw it. 2012 2013 Jan 1J u l y 1O n l y 50% of policies written on July 1 are EARNED by end of year Base rate increased April 1, 2012 to $1,100 a) 2012 Earned Premium: Policies written on Jan 1, 2012 (fully earned by end of year) o Terr 1: 10 x ($1,000 x 1.0 + $50) = 10,500 o Terr 2: 15 x ($1,000 x 1.5 + $50) = 23,250 Policies written on July 1, 2012 (only half earned by end of year, also base rate is now $1,100) o Terr 1: ½ x 12 x ($1,100 x 1.0 + $50) = 6,900 o Terr 2: ½ x 12 x ($1,100 x 1.5 + $50) = 10,200
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

Page1 / 6

Term Test 1_solutions - ACTUARIALSCIENCE462/862 TERMTEST#1...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon bookmark
Ask a homework question - tutors are online