2019 Spring #15

I noticed in the examiners report for 2019 Spring #15 that the company loss & LAE ratio is capped at 300% by year in calculating the average company loss & LAE ratio.

I couldn't find any mention of that in the Wiki so I was wondering if you could add it? I was able to confirm the capping in the source material (Odomirok p.276).

Comments

  • Thank you very much @underhillp for pointing that out. I have added a footnote below the BattleTable and also at the end of the R5 section in the wiki. I used the initials AU to give you a shout-out. If you'd like different initials, let me know.

    That was a very helpful comment.

  • On this problem, the excessive growth factor is multiplied by a .225 and I cannot figure out where this number is coming from. The number in the text on page 286 is .450, but this seems to be a problem-specific number, but I can't figure out how they calculated. Any help would be appreciated. Thanks!

  • .450 is the Reserves excess growth charge. .225 is the NWP excess growth charge. These are NAIC givens, not problem-specific. The .225 number is on text page 294.

  • Ah, stopped reading one page too short lol. Thanks!

  • The example info says that the "% of written premium on assumed loss sensitive retro-rated plans" is 4% for WC. So why is all the Gross premium listed as "Direct"? Shouldn't the table on top say "Direct & Assumed"?

  • Odomirok notes on page 278 that net premium should come from Underwriting and Investment Exhibit. The relevant part of UIE has the data in a format similar to the premium table in this CAS question, except that it also includes "Assumed From Affiliates" and the cededs.

    The purpose of giving this UIE extract may have been to test if you'll know to use the net premium. The actual UIE also includes an "Assumed from Affiliates" column, and presumably, the given 4% of premium on assumed LSRR would have been found in that column.

  • Hello, for this question, can i just clarify that R5 is looking for company loss & LAE ratio, which is capped at 300%.

    For the wiki, under the R4 section, i noticed that “The LDFs are calculated as the (current reserve for 9 prior AYs)/(initial reserves for those AYs). ← capped at 400%”. So for R4, it is referring to the LDF factor and it is capped at 400%.

    Am I correct?

  • Company loss & LAE ratio is the average of the loss & LAE ratios of 10 AYs, and each AY's loss & LAE ratio is capped at 300%.

    What you say for the R4 charge is correct.

  • edited September 2023

    Hi, for this question the formula for the loss sensitive adjustment is .3(12%)+.15(4%). Where do we get the .3 and .15 in this equation? I understand the 12% and 4% come from the % of WP on direct and assumed loss sensitive.

  • They are from the statutory rule. 30% of direct and 15% of assumed loss-sensitive premium is taken out of the base charge, i.e. base charge is "discounted." Loss sensitive policies have the ability to adjust premium due to losses, but direct policies can probably be adjusted more than assumed policies.

    https://battleacts6us.ca/wiki6us/Odomirok.19-RBC#Week_2:Day_5.28R5.29:~:text=Odomirok%20%2D%20R5%20example

  • So for the excess growth for each year, you use ****direct WP combined**** for all lines, but when you are calculating the actual excess growth charge, you use excess growth rate * ****net WP for CY**** * .225 ?

    Is this correct?

    Also, easier question: why is direct and net premiums different since reinsured assumed is empty? What is net premiums net of exactly?

  • This is correct. I see that the Odomirok text doesn't elaborate on this. It would seem to me that you'd want to calc the growth rate on net premium as well. But it's not the case, and you should know to do as you outlined.

    Net = Direct + Assumed - Ceded.

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