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What are 5 Characteristics of Rates?
(want rates that are...)
- -Stable
- -Responsive
- -Based on Contingencies
- -Promote Loss Control
- -Keep it simple
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what are 3 characteristics of an Actuary?
- -Crucial to ratemaking process
- -Work for companies, consultants, and regulatory authorities
- -Supple prospective loss costs to advisory orgs. like ISO
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Whose Job is it to come up with Rate Components?
the Actuary's
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What are 3 Different Rate Components?
- Prospective Loss Costs
- Expense Provision
- Profit and Contingencies
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What are Prospective Loss Costs?
- Rate Component that is:
- -the amount needed to pay future claims
- (aka Pure Premium, P*)
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What is the Expense Provision?
- Rate Component that is:
- -the amount needed to pay future expenses
- (Premium taxes, overhead, ect.)
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What are Profit and Contingencies?
- Rate Component thats are:
- -Where carrier amounts for the losses exceeding expectations and possible profit
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What is the Starting Point for Estimation of Losses?
Past Losses
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What are you doing when you take losses from past periods and adjust for future conditions?
Estimating of Losses
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Loss Reserves are estimates on costs for claims reported and ________?
Not Reported
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In IBNR, not all claims are paid in year ______ is paid.
Premium
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In IBNR, not all claims are even _______ in year Premium is paid.
Reported
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The fact that:
-Not all claims are paid in the year premium is paid and
-Not all are even reported the year the premium is paid
means that we are always doing what?
Making estimates
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In IBNR, what is the delay often caused by?
policyholder reporting claims (Policyholders wait to file claim instead of at the time of an incident)
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What are Other Delay's in Rate Function? (5)
"twittlhe" T-W-T-L-H
- -Time required to analyze data and prepare for rate filing
- -Waiting for state approval
- -Time it takes to implement a new rate
- -Legislative or Regulatory Changes
- -Hard vs Soft Market
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What is the equation for Pure Premium Rate Making Method?
- Loss per Exposure + Expense per Exposure
- ___________________________________
(1 - Contingency Factor %)
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What is the equation for Loss Ratio Rate Making Method?
- Actual Loss Ratio= Incurred Losses / Earned Premiums
- Expected Loss Ratio= 100%- Expense Provision
- Loss Ratio Rate = (Actual Loss Ratio-Expected Loss Ratio) / (Expected Loss Ratio)
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What Ratemaking method adjusts existing insurance rate upward or downward to reflect current conditions?
Loss Ratio Method
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In what Ratemaking Method does the Underwriter set rates based on experience?
Judgment Method
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What is an example where the Judgment Method ratemaking method would be used? (4)
- Ocean Marine
- Inland Marine
- Aviation
- some Lloyd’s vehicles
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What are the types of Data Collection for Ratemaking?
- Policy Yr.
- Calendar Year
- Accident Year
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What Data collection method Analyzes earned premiums, exposure units and incurred losses within a specific group of policies to a given 12 month period?
-Policy Yr. Method
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What method is the only data collection method that exactly matches data to a specific group of insureds? (apples to apples)
-Policy Yr method
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What is the Advantage of Policy Yr. Data Collection Method?
-Apples to apples
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What are the Disadvantages of Policy Yr. Data Collection Method?
- Longer to collect than other methods
- Expensive as this data is only guaranteed for ratemaking
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What data collection method takes data from accounting sources?
Calendar Year Collection Method
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What data collection method uses written premium and unearned premium reserves (Not earned premiums)
Calendar Year
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What is the equation (used in Calendar Yr Data collection) for Incurred Losses
- Incurred losses= losses paid during year
- + loss reserves at the end of the year
- - loss reserves at the end of the year minus loss reserves at the beginning of the year
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What are Advantages to Calendar Year data collection method?
Very cheap, easy and quick
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What are Disadvantages to Calendar Year data collection method?(2)
- Least accurate of 3 Methods
- does not include exposure unit data
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Accident Year data collection is the same as calendar year method except for what?
How the losses are reported
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Accident year data collection method is less susceptible to what? LOL
less susceptible to reserve changes because it uses losses for a specific year
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What data collection method takes the "fast/cheap/inaccurate" method and tries to "true-up" based on losses?
Accident Yr Method
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What does "true-ing up" do in terms of accuracy in Accident Year Method?
makes more accurate
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Raw Data is ______ ,________, and ______ that reflect past and present.
Premium, losses, and exposures reflect past and present
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What are the 2 Loss Development Factors?
- Insurers cant wait for data to mature before adjusting Rates
- Use Successive Estimates of reported losses to project the shape of loss triangles
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Ratemaking Data Development consists of what 5 actions?
- Collecting Data
- Adjusting Data
- Determining Territory & Class
- Preparing rate filing
- submitting to regulatory authorities
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How does Liability trend?
Frequency and Severity
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How does Property trend?
Only Severity
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What are characteristics of Experience Period?
- Varies for different lines
- Auto is 1-3 years b/c it is property and casualty
- Liability is 5-7 years b/c of long-tail
- Wind/Flood is approximately 20 years b/c it is a feast for famine event
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What are characteristics of Large Loss Limitations?
- Certain ones are only partially considered for ratemaking
- Spike Claims can often skew the data
- Want to smooth out your data
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