# - TIA EXAM 5 - WERNER CH 14

### Card Set Information

 Author: CDP ID: 73671 Filename: - TIA EXAM 5 - WERNER CH 14 Updated: 2011-03-18 11:39:20 Tags: TIA EXAM WERNER Folders: Description: - TIA EXAM 5 - WERNER CH 14 Show Answers:

Home > Flashcards > Print Preview

The flashcards below were created by user CDP on FreezingBlue Flashcards. What would you like to do?

1. Non-Pricing Solutions to imbalance
• 1. Expense Reductions
• 2. Reducing Average Expected Loss:
• a. Change in mix of business
• b. Reduce coverage provided by policy
• c. Institute better loss control procedures
2. Potential actions to change mix of business
• Tighten underwriting criteria
• Non-renew policies that are signi ficantly underpriced
3. List two Pricing Solutions to Imbalance
• 1. Adjust Rates
• 2. Expect new UW Profit
4. What are the necessary steps in calculating new rates for an existing product?
• 1. Select an overall average premium target for the future policy
• 2. Finalize the structure of the rating algorithm
• 3. Select the final rate differentials for each of the rating variables
• 4. Calculate proposed fixed expense fees, if applicable
• 5. Derive the base rate necessary to achieve the overall average premium target
5. Calculation of Fixed Expense Fees and Other Additive Premium
Ap = Ef / (1 - V - Qt)
6. Derivation of Base Rate
• 1. Extension of Exposures Method
• 2. Approximated Average Rate Diff erential Method
• 3. Approximated Change in Average Rate Differential Method
7. Describe Extension of Exposures Method
• Rerate individual policies or unique combinations of rating variables using current rates
• Using the proposed rate differentials and expense fee,calculate average premium
• Need proposed base rate BP, so start with seed base rate and calculate Ps
• Calculate Ps
• Bp = Bs x (Pp - Ap) / (Ps - Ap)
8. Describe Approximated Average Rate Differential Method
• Need to approximate the average proposed rate differential (Sp) and use
• Approximate Sp as product of the average differential of each of the rating variables
• Bp = (Pp - Ap) / Sp
9. Describe Approximated Change in Average Rate Differential Method
• Can use change in average rate differential and focus solely on rating variables that are changing
• Weight with current variable premium
• Calculate the proposed base rate using the indicated overall change with the following
10. Considerations when using premium transition rule (Dictates min/max to apply on renewal to insured)
• Need to determine max/min premium change amounts
• Rules apply only to premium changes directly resulting from rate change: Change in exposures or other risk characteristics should not be included
• Length of time to implement: Depends on rate change and transition rule; Want to avoid long periods to avoid multiple overlapping transition periods created by multiple rate changes
• Effect of average premium level should also be considered and base rate adjusted accordingly: Decide whether want projected average premium over transition period or by the end
11. Expected Distribution used to calculate rate effect
• Typically use latest inforce exposure distribution to project future distribution: Should adjust for any known changes to happen in prospective period
• Assume rate change will not change the existing portfolio: Validity of assumption depends on product, market conditions, and extent of change
• Price optimization techniques address issue of change in volume and distribution: Considers how rate change is expected to affect demand
12. Calculating New Rates Based on Bureau or Competitor Rates to price
• Company data for similar products
• Similar products of competitors
• Information from rating bureaus
13. Communicating and monitoring proposed rates that apply to new product
• Regulators: Likely want source of derivation of rates; Some justication for judgmental adjustments
• Company internal management: Want to know expected profitability; Competitive position
14. Communicating and monitoring proposed rates that apply to existing product, more extensive communication
• 1. Regulators:
• May require significant detail on methodology used
• Detailed policyholder premium impacts
• 2. Company internal management: Want to understand impact on Competitive position, Expected volume, Expected profi tability

What would you like to do?

Home > Flashcards > Print Preview