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Retroactive date
- Restricts policy coverage to accidents occurring on or after that date
- Previous occurrence basis policy
- First year of professional practice
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Tail coverage
Provides protection for claims reported after professional retires
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Report year lag
= Report year - Accident year
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Mature C-M
Policy covers claims reported during the policy period, regardless of accident date
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First-year C-M
Policy covers only the "lag 0" column
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C-M Ratemaking Principles
- 1. C-M policy should always cost less than an occurrence policy, as long as claim costs are increasing
- 2. Whenever there is a sudden, unpredictable change in the underlying trend, C-M policies priced on the basis of the prior trend will be closer to the correct price than occurrence policies price in the same way
- 3. Whenever there is a sudden unexpected shift in the reporting pattern, the cost of mature C-M coverage will be a ffected very little if at all relative to occurrence coverage
- 4. C-M policies incur no liability for IBNR claims so the risk of reserve inadequacy is greatly reduced
- 5. Investment income earned from C-M policies is substantially less than under occurrence policies
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Step factor
- 1. Recognize growth in exposure for each successive C-M policy during transition: Percentage of mature C-M rate
- 2. Determination requires evaluation of expected reporting lag and various factors aff ecting claim costs during the lag time: Leads to distribution of costs to each of the lags of mature C-M policy
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