9

3304 Assignment 9 Project (30 points)

The chief actuary has assigned you the project of developing rates for liability coverage for their

new classic and antique car liability coverage program. The chief actuary provides you with this

information obtained from the company they just purchased that had been providing this type of

classic car coverage in the past. Your job is to calculate:

1. ( 5 points) The rate per exposure unit using the pure premium method 2. (5 points) The rate change for the overall book of business using the loss ratio ratemaking

method

3. (20 points) The actuary also wants you to consider a judgment rating method for insuring the physical damage for the antique and classic autos. What variables or other

considerations would go into this judgment rate

Information provided by the chief actuary

 Incurred losses $1,200,000

 Earned car units (number of cars insured – while standard auto policies consider driving record, age, and the like – this insurer sees liability being the same on the average for all

vehicles because they are so valuable and not driven to extremes) 10,000

 Earned premiums $1,400,000

 Pure premium $1,600,000

 Expected loss ratio .76

 Profit and contingencies factor .08

 Expenses per exposure unit $42