Teng & Perkins

Question 1

Why retro-rated policies are popular

Answer 1

• Premium is returned to insured for good loss experience
• cash flow advantage: the insured can pay premium as losses are reported or paid, instead of upfront
• more risks is shifted to insured - final premium varies based on retrospective experience

Question 2

Teng & Perkins main goal is

Answer 2

to calculate premium deficiency reserve by deriving the relationship between loss and premium

Question 3

Basic Premium definition

Answer 3

covers admin expenses, premium that you pay if you have 0 losses

= Expense Provision + Net Ins Charge + xs Loss Charge

Question 4

What does net insurance charge represent

Answer 4

Net Ins Charge is the diff between expected loss to the insurer caused by maximum retro premium and expected loss to the insurer caused by the minimum retro premium

Question 5

Premium Asset calculation

Answer 5

Ult Premium - current booked premium

Question 6

Fitzgibbon’s regression indication, what does y-axis and x-axis represent

Answer 6

y-axis: retro prem as a % of standard prem
x-axis: incurred loss as a % of standard prem

Question 7

Problem with Fitzgibbon’s straight line graph and solution by Berry

Answer 7

It ignores actual emerging experience, which may differ from expected
Berry begins with Fitzgibbon’s method and gradually gives more weights to actual