- TIA EXAM 5 - WERNER CH 16.txt

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  1. Retroactive date´╗┐
    • Restricts policy coverage to accidents occurring on or after that date
    • Previous occurrence basis policy
    • First year of professional practice´╗┐
  2. Tail coverage
    Provides protection for claims reported after professional retires
  3. Report year lag
    = Report year - Accident year
  4. Mature C-M
    Policy covers claims reported during the policy period, regardless of accident date
  5. First-year C-M
    Policy covers only the "lag 0" column
  6. C-M Ratemaking Principles: #1
    1. C-M policy should always cost less than an occurrence policy, as long as claim costs are increasing

    • Occurence policy require actuary to project settlement of clms that occur futher into future:
    • short term is more accurate: CM
  7. C-M Ratemaking Principles: #2
    2. Whenever there is a sudden, unpredictable change in the underlying trend, C-M policies priced on the basis of the prior trend will be closer to the correct price than occurrence policies price in the same way

    • Occurence policy require actuary to project settlement of clms that occur futher into future:
    • Error in trend selection has more impact on occurence policies
  8. C-M Ratemaking Principles: #3
    3. Whenever there is a sudden unexpected shift in the reporting pattern, the cost of mature C-M coverage will be a ffected very little if at all relative to occurrence coverage
  9. C-M Ratemaking Principles: #4
    4. C-M policies incur no liability for IBNR claims so the risk of reserve inadequacy is greatly reduced

    CM have no pure IBNR component by definition: only need to estimate IBNER
  10. C-M Ratemaking Principles: #5
    5. Investment income earned from C-M policies is substantially less than under occurrence policies

    CM shortens time btwn premium collection and pmt of claim so earn less income on that money
  11. When calculating CM policy target UW Profit, should consider what?
    • 1. Reduced investment income
    • 2. Reduced pricing risk
  12. Step factor when coordinating policies
    1. Recognize growth in exposure for each successive C-M policy during transition: Percentage of mature C-M rate

    2. Determination requires evaluation of expected reporting lag and various factors affecting claim costs during the lag time: Leads to distribution of costs to each of the lags of mature C-M policy
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- TIA EXAM 5 - WERNER CH 16.txt
exam 5a
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