- TIA EXAM 5 - CAS 1 RATEMAKING

The process of determining rates used in insurance or other risk transfer mechanisms

cost of insured claims

costs of settling claims that are directly assignable to specific claims

costs associated with the claim settlement function not directly assignable to specific claims

compensation to agents and brokers

all costs, except commission and brokerage, associated with acquiring business

non-guaranteed return of premium charged to operations as an expense

all other operational and administrative costs

amounts that provide an appropriate total after-tax return when considered with net investment and other income

1. A rate is an estimate of the expected value of future costs

2. A rate provides for all costs associated with the transfer of risk

3. A rate provides for the costs associated with an individual risk transfer

4. A rate is reasonable and not excessive, inadequate, or unfairly discriminatory if it is an actuarially sound estimate of the expected value of all future costs associated with an individual risk transfer

CHOII CALM COD REPORT

• CREDIBILITY
• HOMOGENEITY
• ORGANIZATION OF DATA
• INDIVIDUAL RISK RATING
• INVESTMENT AND OTHER INCOME

• CLASSIFICATION PLANS
• ACTUARIAL JUDGMENT
• LOSS DEVELOPMENT
• MIX OF BUSINESS

• CATASTROPHES
• OPERATIONAL CHANGES
• DATA

• RISK
• EXPOSURE
• POLICY PROVISIONS
• OTHER INFLUENCES
• REINSURANCE
• TRENDS

• It is desirable that the exposure unit is
• 1. verifiable
• 2. varies with the hazard
• 3. practical

historical experience along with relevant external experience which may indicate trends

• CY, AY, RY, PY.
• Data availability,
• clarity,
• simplicity and
• the nature of the insurance coverage affect choice

subdividing experience into groups exhibiting similar characteristics

• measure of the predictive value attached to a particular set of data
• increased by homogeneity or greater volume

development of losses over time

past and prospective changes in claim costs, frequencies, exposures, expenses, and premiums

impact of cats on experience and procedures to include an allowance for the catexposure in the rate

effect of salvage and subrogation, coinsurance, coverage limits, deductibles

distributional changes in deductibles, coverage limits or type of risks

effect of reinsurance arrangements

• Underwriting process
• Claim handling
• Case Reserving
• Marketing practices

• Judicial environment
• Economic variable
• Regulatory and legislative changes
• Residual market
• Guarantee funds

properly defined class plan enables development of actuarially sound rates

impact of individual risk rating plans on overall experience

• Charge for random variation from expected costs should be reflected in u/w profit provision
• Charge for systematic variation from expected costs should be reflected in contingency provision

Contribution of net investment and other income should be considered

may be applied throughout ratemaking process and should be documentedand available for disclosure