- TIA EXAM 5 - WERNER CH 16

• Restricts policy coverage to accidents occurring on or after that date
• Previous occurrence basis policy
• First year of professional practice

Provides protection for claims reported after professional retires

= Report year - Accident year

Policy covers claims reported during the policy period, regardless of accident date

Policy covers only the "lag 0" column

1. C-M policy should always cost less than an occurrence policy, as long as claim costs are increasing

• Occurence policy require actuary to project settlement of clms that occur futher into future:
• short term is more accurate: CM

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

• Occurence policy require actuary to project settlement of clms that occur futher into future:
• Error in trend selection has more impact on occurence policies

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

CM have no pure IBNR component by definition: only need to estimate IBNER

5. Investment income earned from C-M policies is substantially less than under occurrence policies

CM shortens time btwn premium collection and pmt of claim so earn less income on that money

• 1. Reduced investment income
• 2. Reduced pricing risk

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 affecting claim costs during the lag time: Leads to distribution of costs to each of the lags of mature C-M policy