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Werner ch 4
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Define Exposure
Basic unit that measures a policy's exposure to loss
What criteria should a good exposure base meet?
1. Directly proportional to expected loss
2. Practica
l3. Should consider any preexisting exposure base established within the industry
Describe criteria for Exposure Bases: Proportional to Expected Loss
Factor with most direct relationship to losses should be selected as exposure base
1. Also makes exposure base more easily understood by the insured
2. Should be responsive to changes in exposure to risk
Describe criteria for Exposure Bases: Practical
Selected base should be well-defined, objective, and relatively easy and inexpensive to obtain and verify
Will be consistently measured
Describe criteria for Exposure Bases: Historical Precedence
Should carefully consider change in an exposure base prior to implementing
Can lead to large premium swings
Requires a change in rating algorithm
Exposures for Large Commercial Risks
Composite Rating
Loss-Rated Composite Rating
What are the two methods of Aggregation of Exposures?
1. Calendar Year Aggregation and Accident Year Aggregation
All exposures on policies within calendar period
Regardless of policy effective date
Represented graphically by squares
2. Policy Year Aggregation
All exposures on policies with effective dates during the year
Represented graphically by parallelograms
What are Written Exposures
Total exposures arising from policies written during a specific time period
What are Earned Exposures
Portion of the written exposures for which coverage has been provided at a certain time
What are Unearned Exposures
Portion of written exposures for which coverage has not been provided
Amount of exposure company has not yet earned
What are Inforce Exposures
Number of insured units that are exposed to a claim as of agiven date
Describe Exposure Trend
Some lines of business use exposures which are affected by time-related influences
E.g., payroll and sales revenue are affected by inflation
May need to measure the exposure trend over time to project exposures at future levels
Selected trends for Exposure Trend can use:
Internal insurance company data (e.g., WC payroll data)
Industry indices (e.g., average wage index)
Author
Esaie
ID
12801
Card Set
Werner ch 4
Description
Exam 5 TIA Werner ch 4
Updated
2010-04-01T14:11:42Z
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