- TIA EXAM 5 - CAS 1 RATEMAKING

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CDP
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72150
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- TIA EXAM 5 - CAS 1 RATEMAKING
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2011-03-10 20:16:08
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TIA EXAM CAS RATEMAKING
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- TIA EXAM 5 - CAS 1 RATEMAKING
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  1. What is RATEMAKING?
    The process of determining rates used in insurance or other risk transfer mechanisms
  2. What is INCURRED LOSSES?
    cost of insured claims
  3. What is ALAE?
    costs of settling claims that are directly assignable to specific claims
  4. What is ULAE?
    costs associated with the claim settlement function not directly assignable to specific claims
  5. Commission and brokerage expenses
    compensation to agents and brokers
  6. Other acquisition expenses
    all costs, except commission and brokerage, associated with acquiring business
  7. Policyholder dividends
    non-guaranteed return of premium charged to operations as an expense
  8. General administrative expenses
    all other operational and administrative costs
  9. Underwriting profit and contingency provision
    amounts that provide an appropriate total after-tax return when considered with net investment and other income
  10. What are the RATEMAKING PRINCIPLES?
    1. A rate is an estimate of the expected value of future costs

    2. A rate provides for all costs associated with the transfer of risk

    3. A rate provides for the costs associated with an individual risk transfer

    4. A rate is reasonable and not excessive, inadequate, or unfairly discriminatory if it is an actuarially sound estimate of the expected value of all future costs associated with an individual risk transfer
  11. List all 18 Considerations when Ratemaking
    CHOII CALM COD REPORT

    • CREDIBILITY
    • HOMOGENEITY
    • ORGANIZATION OF DATA
    • INDIVIDUAL RISK RATING
    • INVESTMENT AND OTHER INCOME

    • CLASSIFICATION PLANS
    • ACTUARIAL JUDGMENT
    • LOSS DEVELOPMENT
    • MIX OF BUSINESS

    • CATASTROPHES
    • OPERATIONAL CHANGES
    • DATA

    • RISK
    • EXPOSURE
    • POLICY PROVISIONS
    • OTHER INFLUENCES
    • REINSURANCE
    • TRENDS
  12. CONSIDERATIONS: Exposure Unit
    • It is desirable that the exposure unit is
    • 1. verifiable
    • 2. varies with the hazard
    • 3. practical
  13. CONSIDERATIONS: Data
    historical experience along with relevant external experience which may indicate trends
  14. CONSIDERATIONS: Organization of Data
    • CY, AY, RY, PY.
    • Data availability,
    • clarity,
    • simplicity and
    • the nature of the insurance coverage affect choice
  15. CONSIDERATIONS: Homogeneity
    subdividing experience into groups exhibiting similar characteristics
  16. CONSIDERATIONS: Credibility
    • measure of the predictive value attached to a particular set of data
    • increased by homogeneity or greater volume
  17. CONSIDERATIONS: Loss Development
    development of losses over time
  18. CONSIDERATIONS: Trends
    past and prospective changes in claim costs, frequencies, exposures, expenses, and premiums
  19. CONSIDERATIONS: Catastrophes
    impact of cats on experience and procedures to include an allowance for the catexposure in the rate
  20. CONSIDERATIONS: Policy Provisions
    effect of salvage and subrogation, coinsurance, coverage limits, deductibles
  21. CONSIDERATIONS: Mix of Business
    distributional changes in deductibles, coverage limits or type of risks
  22. CONSIDERATIONS: Reinsurance
    effect of reinsurance arrangements
  23. CONSIDERATIONS: Operational Changes
    • Underwriting process
    • Claim handling
    • Case Reserving
    • Marketing practices
  24. CONSIDERATIONS: Other Influences
    • Judicial environment
    • Economic variable
    • Regulatory and legislative changes
    • Residual market
    • Guarantee funds
  25. CONSIDERATIONS: Classification Plans
    properly defined class plan enables development of actuarially sound rates
  26. CONSIDERATIONS: Individual Risk Rating
    impact of individual risk rating plans on overall experience
  27. CONSIDERATIONS: Risk
    • Charge for random variation from expected costs should be reflected in u/w profit provision
    • Charge for systematic variation from expected costs should be reflected in contingency provision
  28. CONSIDERATIONS: Investment and Other Income
    Contribution of net investment and other income should be considered
  29. CONSIDERATIONS: Actuarial Judgment
    may be applied throughout ratemaking process and should be documentedand available for disclosure

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