- TIA EXAM 5 - WERNER CH 15

Card Set Information

Author:
CDP
ID:
73675
Filename:
- TIA EXAM 5 - WERNER CH 15
Updated:
2011-03-18 12:02:07
Tags:
TIA EXAM WERNER
Folders:

Description:
- TIA EXAM 5 - WERNER CH 15
Show Answers:

Home > Flashcards > Print Preview

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


  1. Considerations when pricing Commercial Insurance Products
    • 1. Creation of homogeneous groups for ratemaking purposes not feasible
    • 2. Some commercial risks are large enough to use their own experience (in whole or part) to price
    • 3. Individual Risk Rating (IRR):
    • Price coverage provided more accurately than if rates were based in manual rates only
    • Balance risk sharing and risk bearing
  2. Manual rate modification mechanisms
    • Experience rating
    • Schedule rating
  3. Rating techniques for large commercial insureds
    • Large deductible plans
    • Loss-rated composite rating
    • Retrospective rating plans
  4. Actual and expected experience may be compared in following ways for experience period
    • Actual paid loss & ALAE with expected paid loss & ALAE
    • Actual reported loss & ALAE with expected reported loss & ALAE
    • Projected ultimate loss & ALAE with expected ultimate loss & ALAE
    • Projected ultimate loss & ALAE adjusted to current exposure and dollar levels with expected ultimate loss & ALAE based upon the current exposure and dollar levels
  5. If basis of experience rating formula is projected ult losses at current exposure & dollar levels, what do we have to adjust for?
    • 1. Economic & social inflation
    • 2. Changes in risk characteristics
    • 3. Changes in policy limits
  6. The expected component losses estimate what and
    • Estimated as a product of exp loss rate and exposure measure
    • Can reflect prior/current period
  7. Formula for computing GL ERP credit/debit
    CD = (AER - EER) / EER x Z
  8. Calculation of the Actual Experience Ratio (AER)
    • 1. Company Subject B/L L&ALAE Costs
    • = Curr B/L Prem * Exp LR * Detrend
    • *
    • 2. Calculate Reported Losses and ALAE Limited by Basic Limits and MSL
    • *
    • 3. Add Expected Unreported Losses and ALAE Limited by Basic Limits and MSL
    • = Comp Subj B/L Loss&ALEAE (1) * EER * %Unrpt
    • *
    • 4. AER = (2 + 3) / (1)
  9. NCCI Formula with substitutions for primary and excess credibility
    • Mp = (Ap + w x Ae + (1 - w) x Ee + B) / (E + B)
    • Ap = Actual Primary Losses
    • Ae = Actual Excess Losses
    • Ep = Expected Primary Losses
    • Ee = Expected Excess Losses
    • B = Ballast Value [stabilizing value based on Zp = E / (E+B)]
    • w = Excess Losses Weighting Factor = Ze / Zp
  10. What is the D-ratio?
    Loss elimination ratio at primary loss limit
  11. Schedule Rating
    • 1. Does not directly reflect claim experience
    • 2. Recognizes characteristics expected to have material effect on experience that are not actually reflected in experience
    • Changes in exposure
    • Changes in risk control programs
    • Used when risk too small to qualify for experience or composite rating
    • 3. May be based on objective criteria or subjective underwriting judgment
    • 4. Avoids double-counting the effect of risk characteristic in both experience and schedule mod
    • **e.g. newly implemented safety program improves experience over yrs
  12. Composite Rating
    • 1. Large, complex risks use a single, composite, exposure base instead of several for many di fferent coverages
    • 2. Composite rate determined at the beginning of the policy period using historical exposures
    • May be determined using manual rates with experience and/or schedule mods
    • Depending on size, may be based solely on insured's own experience (a.k.a. Loss Rated)
    • 3. After expiration, audited to determine composite exposures
  13. Pricing considerations of large deductible policies
    • Claims Handling: Insurer may handle all claims, even if below deductible
    • Application of Deductible: May apply only to losses or losses & ALAE
    • Deductible Processing: Insurer may pay cost of entire claim and then seek reimbursement from company for amounts below deductible
    • Risk Margin: Loss above large ded are more uncertain, & profit may need adjustment
  14. Formula to calculate premium of Large Deductible Policy
    • CR = Credit Risk
    • RM = Risk Margin
    • P = (L + ALAE + Ef + CR + RM) / (1 - V - Q)
  15. Basic Retrospective Rating Formula
    Retro Rating = (Basic Prem + Coverted Losses) x Tax Multiplier
  16. Basic Premium
    • = (Expense Allowance - Expense Prov by LCF + Net Ins Charge) x Std Prem
    • Intended to provide for:
    • Insurer's target u/w profit and expenses excluding expenses provided for by LCF and tax multiplier
    • Net charge for limiting the retro premium between minimum and maximum
    • Cost of limiting each occurrence, if applicable
  17. Converted losses =
    Rpt Loss * LCF
  18. Standard Premium
    • Insurance premium for risk before consideration of retro plan and any premium discount
    • Determined on basis of exposure, insurer's rates, experience mod, and any premium charges excluding premium discount
    • SP = Manual Prem * (1 +/- Experience Modification)
  19. Insurance Charge and Insurance Savings
    • Insurance Charge is an estimate of cost to insurer associated with retro max
    • Insurance savings is an estimate of savings to insurer for requiring a min premium
  20. Company Subject Loss & ALAE Cost =
    SP * Experience L & ALAE ratio

What would you like to do?

Home > Flashcards > Print Preview