AAA Credit Score

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  1. Why credit scores are on the decline
    • major economic crisis has imposed considerable hardship on individuals and businesses
    • severe tightening of the credit markets
    • increasing number of Americans are experiencing loss of income
  2. Arguments for the use of credit-based insurance score
    • there is a strong correlation between CBIS and the expected costs associated with the risk
    • Principle 4 of CAS Ratemaking SoP: rate is an actuarially sound estimate of future costs
    • ASOP No. 12, Risk Classification: relationship of risk characteristics and expected cost
    • removal of CBIS will not lower overall premium, but only redistribute it so risks with lower expected costs will pay more, and those with greater expected costs will pay less.
    • most companies report that the use of CBIS have allowed them to write more risks from the general population
  3. Effect of economic conditions on CBIS
    • impact on aggregate premium: actuaries would observe the distributional shift and adjust overall rate levels so that the total premium collected remains the same
    • impact on individuals’ premium: insurers can adjust classification to reduce differentials
Card Set:
AAA Credit Score
2014-04-12 18:02:48
Credit Score
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