Werner ch 4

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Werner ch 4
2010-04-01 10:11:42
Exam 5 TIA Werner ch 4

Exam 5 TIA Werner ch 4
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  1. Defi ne Exposure
    Basic unit that measures a policy's exposure to loss´╗┐
  2. What criteria should a good exposure base meet?
    • 1. Directly proportional to expected loss
    • 2. Practica
    • l3. Should consider any preexisting exposure base established within the industry
  3. Describe criteria for Exposure Bases: Proportional to Expected Loss
    • Factor with most direct relationship to losses should be selected as exposure base
    • 1. Also makes exposure base more easily understood by the insured
    • 2. Should be responsive to changes in exposure to risk
  4. Describe criteria for Exposure Bases: Practical
    • Selected base should be well-de fined, objective, and relatively easy and inexpensive to obtain and verify
    • Will be consistently measured
  5. Describe criteria for Exposure Bases: Historical Precedence
    • Should carefully consider change in an exposure base prior to implementing
    • Can lead to large premium swings
    • Requires a change in rating algorithm
  6. Exposures for Large Commercial Risks
    • Composite Rating
    • Loss-Rated Composite Rating
  7. What are the two methods of Aggregation of Exposures?
    • 1. Calendar Year Aggregation and Accident Year Aggregation
    • All exposures on policies within calendar period
    • Regardless of policy eff ective date
    • Represented graphically by squares

    • 2. Policy Year Aggregation
    • All exposures on policies with eff ective dates during the year
    • Represented graphically by parallelograms
  8. What are Written Exposures
    Total exposures arising from policies written during a specifi c time period
  9. What are Earned Exposures
    Portion of the written exposures for which coverage has been provided at a certain time
  10. What are Unearned Exposures
    • Portion of written exposures for which coverage has not been provided
    • Amount of exposure company has not yet earned
  11. What are Inforce Exposures
    Number of insured units that are exposed to a claim as of agiven date
  12. Describe Exposure Trend
    • Some lines of business use exposures which are a ffected by time-related influences
    • E.g., payroll and sales revenue are aff ected by inflation
    • May need to measure the exposure trend over time to project exposures at future levels
  13. Selected trends for Exposure Trend can use:
    • Internal insurance company data (e.g., WC payroll data)
    • Industry indices (e.g., average wage index)