flashcards
Criteria for evaluating rating variables
Statistical, Operational, Social, Legal
Statistical Criteria
Statistical Significance, Homogeneity, Credibility
Operational Criteria
Objective, Inexpensive to administer, Verifiable
Social Criteria
Affordability, Causality, Controllability, Privacy concerns
Legal Criteria
Insurance rates should be not excessive, not inadequate, and not unfairly discriminatory. Additionally, some states’ statutes may require certain rates to be actuarially sound.
Policy Year Advantage
Matches premiums and losses from policies
Policy Year Disadvantage
Less mature than other methods
Calendar Year - Advantage
Fully mature at end of the year
Calendar Year Disadvantage
Premiums and losses are not matched
Cal/Acc Year Advantage
Does a better job of matching premium and loss
Cal/Acc Year Disadvantage
Requires adjustment for audits & rates
Define exposure.
Basic unit of risk underlying the premium
Define loss adjustment expense.
Expense to settle claims incurred by the insurer
Describe the goal of ratemaking.
Goal of ratemaking is to have a balanced fundamental insurance equation
Describe why an actuary should consider the fundamental insurance equation at the individual risk level.
Third CAS Ratemaking Principle: A Rate provides for the costs associated with an individual risk transfer, Policy with more risk should cost more; Failure to recognize risk differences leads to rates that are not equitable
It is desirable that the exposure unit is
- practical; 2. verifiable; 3. varies with the hazard
Statement of Principles Regarding Property and Casualty Insurance Ratemaking,
- 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
If a rate is actuarially sound, it complies with four criteria commonly used by actuaries. Name these four criteria.
It is reasonable; Not excessive; Not inadequate; Not unfairly discriminatory
According to the Statement of Principles Regarding Property and Casualty Insurance Ratemaking, which of the following statements is true?
Taxes, licenses, and fees exclude federal income taxes.
State the four ratemaking principles of the Casualty Actuarial Society.
- 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
Written premium
Dollar amounts charged by an insurer for policies written during a specific time period.
Earned premium
Amount of the policy premiums that have been exposed to risk during a specified time period. Earned Premium is directly proportional to the portion of the policy period covered by the insurer during the specified time period.
Unearned premium
Portion of written for which coverage has not been provided
In-force premium
Full-term premium of all policies in effect at a specific point in time.