Finance Assignment | Professional Writing

3. There is a lot of competition for gun collection policies because many companies write this as accommodation for policyholders who already have their Homeowners and Auto Insurance with them. If you took the entire rate increase dictated by the results in question 2, you would not be competitive with these competing companies who charge a $6.75 rate. Using the Judgment Rating Method, what rate would you charge for your renewing gun collection policies. This is a subjective answer. (2 points) Ratemaking Methods .Loss Ratio Method The expected loss ratio is subtracted from the actual LR The difference is then divided by the expected loss ratio The resulting % difference becomes the recommended rate change LOSS RATIO RATEMAKING METHOD – The loss ratio method uses two loss ratios during the selected experience period: Actual loss ratio =incurred losses / earned premiums Expected loss ratio =100% –

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Expense provision Rate changer actual loss ratio – expected loss ratio Negative arate reduction Positive arate increase Calculate a rate change using the loss ratio method – Actual Earned Premium $4,500,000.00 Actual Incurred Losses and LR Expenses = $3,000,000.00 o 30/45 = 66.66% is actual loss ratio, . The actual loss ratio = 66.66% . The projected loss ratio is 75% Calculate a rate change using the loss ratio method Actual Earned Premium $4,500,000.00 • Actual incurred Losses $3,000,000.00 This loss ratrio is 66.66% . Projected loss ratio 75% 66.66% – .75% = -8.3% – – 11.11% .75% 75% Company can reduce rates by 11% What if the projected loss ratio was 60% and the actual loss ratio was 77%: 77 – 60 = 28.3% rate increase is needed 60 Format ArrangeTools Slide Show WINDOW Help Insurance Operations CH 7 2019 033020 actuarial – Compatibility Mode-Saved to my Mac 15 Animations Slide Show Review View Share Ocor Loss Ratio Measures what you pay out in losses compared to your premium income. Loss ratio = Incurred losses plus loss adjustment expenses (divided by) the earned premium 65% or less is good Pure Premium Ratemaking Method – Step 1 Calculate the pure premium for $100,000. Homeowners policies in Clarion County: $ Incurred losses # of exposure units Example: $975,000 paid losses and loss adjustment expense 3,000 houses insured Pure Premium = $325 for a Homeowners Policy (step 1),

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