3502 Topic 5

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  1. What are 5 Characteristics of Rates?
    (want rates that are...)
    • -Stable
    • -Responsive
    • -Based on Contingencies
    • -Promote Loss Control
    • -Keep it simple
  2. what are 3 characteristics of an Actuary?
    • -Crucial to ratemaking process
    • -Work for companies, consultants, and regulatory authorities
    • -Supple prospective loss costs to advisory orgs. like ISO
  3. Whose Job is it to come up with Rate Components?
    the Actuary's
  4. What are 3 Different Rate Components?
    • Prospective Loss Costs
    • Expense Provision
    • Profit and Contingencies
  5. What are Prospective Loss Costs?
    • Rate Component that is:
    • -the amount needed to pay future claims
    • (aka Pure Premium, P*)
  6. What is the Expense Provision?
    • Rate Component that is:
    • -the amount needed to pay future expenses 
    • (Premium taxes, overhead, ect.)
  7. What are Profit and Contingencies?
    • Rate Component thats are:
    • -Where carrier amounts for the losses exceeding expectations and possible profit
  8. What is the Starting Point for Estimation of Losses?
    Past Losses
  9. What are you doing when you take losses from past periods and adjust for future conditions?
    Estimating of Losses
  10. Loss Reserves are estimates on costs for claims reported and ________?
    Not Reported
  11. In IBNR, not all claims are paid in year ______  is paid.
  12. In IBNR, not all claims are even _______ in year Premium is paid.
  13. The fact that:
    -Not all claims are paid in the year premium is paid and
    -Not all are even reported the year the premium is paid

    means that we are always doing what?
    Making estimates
  14. In IBNR, what is the delay often caused by?
    policyholder reporting claims (Policyholders wait to file claim instead of at the time of an incident)
  15. What are Other Delay's in Rate Function? (5)
    "twittlhe" T-W-T-L-H
    • -Time required to analyze data and prepare for rate filing
    • -Waiting for state approval
    • -Time it takes to implement a new rate
    • -Legislative or Regulatory Changes
    • -Hard vs Soft Market
  16. What is the equation for Pure Premium Rate Making Method?
    • Loss per Exposure + Expense per Exposure
    • ___________________________________

                     (1 - Contingency Factor %)
  17. What is the equation for Loss Ratio Rate Making Method?
    • Actual Loss Ratio= Incurred Losses / Earned Premiums
    • Expected Loss Ratio= 100%- Expense Provision
    • Loss Ratio Rate = (Actual Loss Ratio-Expected Loss Ratio) / (Expected Loss Ratio)
  18. What Ratemaking method adjusts existing insurance rate upward or downward to reflect current conditions?
    Loss Ratio Method
  19. In what Ratemaking Method does the Underwriter set rates based on experience?
    Judgment Method
  20. What is an example where the Judgment Method ratemaking method would be used? (4)
    • Ocean Marine
    • Inland Marine
    • Aviation
    • some Lloyd’s vehicles
  21. What are the types of Data Collection for Ratemaking?
    • Policy Yr. 
    • Calendar Year
    • Accident Year
  22. What Data collection method Analyzes earned premiums, exposure units and incurred losses within a specific group of policies to a given 12 month period?
    -Policy Yr. Method
  23. What method is the only data collection method that exactly matches data to a specific group of insureds? (apples to apples)
    -Policy Yr method
  24. What is the Advantage of Policy Yr. Data Collection Method?
    -Apples to apples
  25. What are the Disadvantages of Policy Yr. Data Collection Method?
    • Longer to collect than other methods
    • Expensive as this data is only guaranteed for ratemaking
  26. What data collection method takes data from accounting sources?
    Calendar Year Collection Method
  27. What data collection method uses written premium and unearned premium reserves (Not earned premiums)
    Calendar Year
  28. What is the equation (used in Calendar Yr Data collection) for Incurred Losses
    • Incurred losses= losses paid during year
    • + loss reserves at the end of the year
    • - loss reserves at the end of the year minus loss reserves at the beginning of the year
  29. What are Advantages to Calendar Year data collection method?
    Very cheap, easy and quick
  30. What are Disadvantages to Calendar Year data collection method?(2)
    • Least accurate of 3 Methods
    • does not include exposure unit data
  31. Accident Year data collection is the same as calendar year method except for what?
    How the losses are reported
  32. Accident year data collection method is less susceptible to what? LOL
    less susceptible to reserve changes because it uses losses for a specific year
  33. What data collection method takes the "fast/cheap/inaccurate" method and tries to "true-up" based on losses?
    Accident Yr Method
  34. What does "true-ing up" do in terms of accuracy in Accident Year Method?
    makes more accurate
  35. Raw Data is ______ ,________, and ______ that reflect past and present.
    Premium, losses, and exposures reflect past and present
  36. What are the 2 Loss Development Factors?
    • Insurers cant wait for data to mature before adjusting Rates
    • Use Successive Estimates of reported losses to project the shape of loss triangles
  37. Ratemaking Data Development consists of what 5 actions?
    • Collecting Data
    • Adjusting Data
    • Determining Territory & Class
    • Preparing rate filing
    • submitting to regulatory authorities
  38. How does Liability trend?
    Frequency and Severity
  39. How does Property trend?
    Only Severity
  40. What are characteristics of Experience Period?
    • Varies for different lines
    • Auto is 1-3 years b/c it is property and casualty
    • Liability is 5-7 years b/c of long-tail
    • Wind/Flood is approximately 20 years b/c it is a feast for famine event
  41. What are characteristics of Large Loss Limitations?
    • Certain ones are only partially considered for ratemaking
    • Spike Claims can often skew the data
    • Want to smooth out your data
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3502 Topic 5
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