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What are 5 Characteristics of Rates?
(want rates that are...)
- -Based on Contingencies
- -Promote Loss Control
- -Keep it simple
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
Whose Job is it to come up with Rate Components?
What are 3 Different Rate Components?
- Prospective Loss Costs
- Expense Provision
- Profit and Contingencies
What are Prospective Loss Costs?
- Rate Component that is:
- -the amount needed to pay future claims
- (aka Pure Premium, P*)
What is the Expense Provision?
- Rate Component that is:
- -the amount needed to pay future expenses
- (Premium taxes, overhead, ect.)
What are Profit and Contingencies?
- Rate Component thats are:
- -Where carrier amounts for the losses exceeding expectations and possible profit
What is the Starting Point for Estimation of Losses?
What are you doing when you take losses from past periods and adjust for future conditions?
Estimating of Losses
Loss Reserves are estimates on costs for claims reported and ________?
In IBNR, not all claims are paid in year ______ is paid.
In IBNR, not all claims are even _______ in year Premium is paid.
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?
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)
What are Other Delay's in Rate Function? (5)
- -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
What is the equation for Pure Premium Rate Making Method?
- Loss per Exposure + Expense per Exposure
(1 - Contingency Factor %)
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)
What Ratemaking method adjusts existing insurance rate upward or downward to reflect current conditions?
Loss Ratio Method
In what Ratemaking Method does the Underwriter set rates based on experience?
What is an example where the Judgment Method ratemaking method would be used? (4)
- Ocean Marine
- Inland Marine
- some Lloyd’s vehicles
What are the types of Data Collection for Ratemaking?
- Policy Yr.
- Calendar Year
- Accident Year
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
What method is the only data collection method that exactly matches data to a specific group of insureds? (apples to apples)
-Policy Yr method
What is the Advantage of Policy Yr. Data Collection Method?
-Apples to apples
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
What data collection method takes data from accounting sources?
Calendar Year Collection Method
What data collection method uses written premium and unearned premium reserves (Not earned premiums)
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
What are Advantages to Calendar Year data collection method?
Very cheap, easy and quick
What are Disadvantages to Calendar Year data collection method?(2)
- Least accurate of 3 Methods
- does not include exposure unit data
Accident Year data collection is the same as calendar year method except for what?
How the losses are reported
Accident year data collection method is less susceptible to what? LOL
less susceptible to reserve changes because it uses losses for a specific year
What data collection method takes the "fast/cheap/inaccurate" method and tries to "true-up" based on losses?
Accident Yr Method
What does "true-ing up" do in terms of accuracy in Accident Year Method?
makes more accurate
Raw Data is ______ ,________, and ______ that reflect past and present.
Premium, losses, and exposures reflect past and present
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
Ratemaking Data Development consists of what 5 actions?
- Collecting Data
- Adjusting Data
- Determining Territory & Class
- Preparing rate filing
- submitting to regulatory authorities
How does Liability trend?
Frequency and Severity
How does Property trend?
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
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