Werner Ch 16

  1. Retroactive date´╗┐
    • Restricts policy coverage to accidents occurring on or after that date
    • Previous occurrence basis policy
    • First year of professional practice´╗┐
  2. Tail coverage
    Provides protection for claims reported after professional retires
  3. Report year lag
    = Report year - Accident year
  4. Mature C-M
    Policy covers claims reported during the policy period, regardless of accident date
  5. First-year C-M
    Policy covers only the "lag 0" column
  6. 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
  7. 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
Card Set
Werner Ch 16
Exam 5 TIA Werner Ch 16