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Bobby
05-12-2011, 09:17 PM
Does anyone know what the answer to part b) and c) were?

I'm wondering because I'm not sure about the order which we needed to apply things. Does the standard premium include the experience mod? Does the standard premium get the discount (do they even get the discount?) Is the expense constant multiplied by the discount? Does the standard premium include the expense constant?

actuarialista
05-12-2011, 11:01 PM
Look at the last few pages of Chapter 2 of W&M. The prem formula is on p. 32 and indicates that the discount and mod don't apply to the expense constant. Strangely, that section doesn't seem to mention "standard premium", but the footnote on p. 204 says that "standard premium" is before discounts and expense constants. Can't believe I'm quoting a footnote....

Bobby
05-12-2011, 11:30 PM
Interesting. In the TIA notes it says:
Standard Premium
• Insurance premium for risk before consideration of retro plan and any premium discount
• Determined on basis of exposure, insurer's rates, experience mod, and any premium
charges excluding premium discount

And in Ken's solution to 1995 - #32 he calculates the standard premium as the basic premium multiplied by the experience mod.

So I'm guessing this means the standard premium was the manual premium (i.e. the exposure bases and the rates per $100 we were given) multiplied by the experience mod that we calculated in part a.

Then part c [final premium] was the standard premium x premium discount factor x exp mod + expense constant?

Bobby
05-12-2011, 11:33 PM
I wonder how much partial credit we'll get if we calculated the manual premium correct but applied a factor to it that we weren't supposed to (or didn't apply a factor that we were supposed to).

JasonScandopolous
05-15-2011, 11:18 PM
Interesting. In the TIA notes it says:


And in Ken's solution to 1995 - #32 he calculates the standard premium as the basic premium multiplied by the experience mod.

So I'm guessing this means the standard premium was the manual premium (i.e. the exposure bases and the rates per $100 we were given) multiplied by the experience mod that we calculated in part a.

Then part c [final premium] was the standard premium x premium discount factor + expense constant?

Yeah this is correct, I slightly messed this up on the exam by not including the exp mod in standard prem, but your part c description is correct.

FourKicks
05-16-2011, 12:58 AM
Yeah this is correct, I slightly messed this up on the exam by not including the exp mod in standard prem, but your part c description is correct.

hmm...

on page 297 of W&M there's this sentence:

This experience modification factor, 1.051, would be applied multiplicatively to the policy’s standard premium.

to me, this clearly implies that the standard premium does not include the experience mod factor.

JasonScandopolous
05-16-2011, 09:48 AM
hmm...

on page 297 of W&M there's this sentence:



to me, this clearly implies that the standard premium does not include the experience mod factor.

you're right, I said the opposite of what I meant; I messed up by including it when I wasn't supposed to.

chopsuey
05-16-2011, 11:15 AM
you're right, I said the opposite of what I meant; I messed up by including it when I wasn't supposed to.

haha... what?

JasonScandopolous
05-16-2011, 12:03 PM
haha... what?

I posted above that, on the test, I erred by defining standard prem as not including experience mod. In reality, I erred on the test when I included experience mod; standard premium does not include experience mod.

Or even simpler: I messed up my description of how I messed up on the test.

Fortunately, this is one of only two things (the other being ISO PAM part c) that I know that I did wrong at this point.

Test_Taker
05-16-2011, 04:32 PM
Pg 307 in W&M

Standard Premium
Standard premium is the insurance premium for the risk before consideration of the retrospectively rated plan and any premium discount. It is determined on the basis of the exposure, the insurer’s rates, the experience modification, and any premium charges excluding premium discount.

FourKicks
05-16-2011, 04:48 PM
Pg 307 in W&M

Standard Premium
Standard premium is the insurance premium for the risk before consideration of the retrospectively rated plan and any premium discount. It is determined on the basis of the exposure, the insurer’s rates, the experience modification, and any premium charges excluding premium discount.

that's the definition of standard premium in the context of a retrospectively rated plan.

the sentence from pg. 297 ("This experience modification factor, 1.051, would be applied multiplicatively to the policy’s standard premium.") is in the context of an NCCI workers comp experience rating plan.

since the question on the exam dealt with an NCCI workers comp experience rating plan, i'm inclined to think that the sentence on pg. 297 is the relevant one, not the sentence from pg. 307.

Test_Taker
05-16-2011, 05:53 PM
Think you might be right. Just found from an old 2005 post:

As for the distinction between experience rating plan factors and experience rating modification factors: Remember that NCCI mandates experience plan. They also define what the plan is, and that's where experience rating plan factors come from. However, individual insurance companies may find that their own book of business data indicate an experience plan different from the NCCI plan. So, the company-specific modification to the NCCI plan is the experience rating modification factors. Same reasoning applies to other related terms. To summarize, standard premium takes into account, the standard NCCI experience rating plan (ERP) and minimum premium (If you prefer Feldblum's definition, ERP, Expense constant and Loss constant). To go from Standard Premium to Net Premium, you adjust the standard premium for all the company-specific deviations from NCCI, premium discount, and individual rating plans.

http://www.actuarialoutpost.com/actuarial_discussion_forum/archive/index.php/t-49670.html

Nykchisox
05-17-2011, 12:15 PM
Does anyone remember their answer for part a?

JasonScandopolous
05-17-2011, 12:22 PM
Does anyone remember their answer for part a?

.83888

booyah81
05-18-2011, 04:27 PM
.83888

Yup!

doop
05-31-2011, 01:25 AM
did you guys use the 15% discount? I did not, because that program would already be reflected in the loss data so it would be redundant to include it again... is that correct?

Kongo
05-31-2011, 01:53 PM
Doop-

I did as you and noted it in the discussion thread following exam. Glad to hear someone else approached it as me.

JasonScandopolous
05-31-2011, 02:23 PM
did you guys use the 15% discount? I did not, because that program would already be reflected in the loss data so it would be redundant to include it again... is that correct?

In theory you are somewhat correct, but I believe that this will lose points on this problem. The reason is, the experience mod is what it is; you may assume that the "expected" losses do or do not include expectations of the ~15% savings, and may assume that actual losses do or do not already reflect the ~15% savings, but the experience mod will be based on the numbers given. I don't think you disagree with this.

It then comes down to whether or not the insurer is forced to give the premium discount or not (the insured was "made eligible" for the discount). If so, it doesn't matter whether the pricing structure counts the effect of the return-to-work program twice, because that's still how the policy premium is calculated.

As far as I see it, you would have to write this on the test for it to be technically correct: "I interpreted the 'premium discount' to actually be part of schedule rating so that I can chose not to use it. I assume that the return-to-work program was in place during the experience period, and that the prem discount would therefore be double counting"

doop
05-31-2011, 03:41 PM
I think I put something like that, identifying that I was assuming the loss control program was in place during the experience period and therefore would be double-counted if included again.

I went that route because there is a previous exam question I saw in TIA that asked a very similar question - something about the loss experience having improved by 5 or 10% each year due to a loss control program. The answer specifically stated that in the next year this 5 or 10% should NOT be included, because that loss change is already in the loss experience, so the experience rating will pick it up and it shouldn't be added in again.

I imagined this was the CAS trying to be tricky. Perhaps they even wanted you to think: "they were eligible for the 15% and the experience mod was less than 15%, so I'll just give them the 15% only (just give them the max discount)". I don't know, but either way I hope that stating your assumptions is more important than choosing the exact same assumptions that they did, because it certainly seemed open-ended.

FourKicks
05-31-2011, 03:48 PM
I imagined this was the CAS trying to be tricky. Perhaps they even wanted you to think: "they were eligible for the 15% and the experience mod was less than 15%, so I'll just give them the 15% only (just give them the max discount)". I don't know, but either way I hope that stating your assumptions is more important than choosing the exact same assumptions that they did, because it certainly seemed open-ended.

i wouldn't give the CAS that much credit. i think it's more the case that the exam committee is careless, so they leave out relevant information. i agree that the question as worded is open-ended, as there's nothing to indicate whether or not the loss control program was in place during the experience period.

eta: jason makes a good point, the question states that their loss control program 'makes them eligible' for a discount, which does seem to imply that they get the discount, regardless of any potential double counting effect. but it certainly could've been made clearer.

Vorian Atreides
05-31-2011, 04:38 PM
I believe this is an example where the Exam writers didn't proof read the problem thoroughly. I believe thier intent was for the 15% to be a premium credit rather than a premium discount. And according to Ch 2, these are two separate things; and in the context of the problem, that 15% is to be used in calculating the final premium (the double counting argument is beside the point, the item being tested here is the calculation of a premium which does not include schedule rating).

The heart of the question here is whether or not to use that 15% to calculate the standard premium. IMHO, they need to accept both the answers that use the 15% credit and the answers that don't:

W&M is clear that NCCI standard premium does not include premium discounts; and the given problem identifies the 15% credit as a "premium discount". So part b should be treated identical to a "calculate the manual premium" problem.
W&M clearly identifies the given rating component as part of premium credits, and given my comment above, W&M is silent on how this type of modifier should be handled wrt "standard premium". That is, W&M doesn't explicitly mention that it's not to be used for calculating standard premium (like premium discount is), so a student can reasonably conclude that this should be used in answering part b.
If one calculates the manual premium correctly, and does not use the experience mod from part a in answering part b, then one should get full credit for part b. :judge:

chopsuey
05-31-2011, 05:03 PM
did you guys use the 15% discount? I did not, because that program would already be reflected in the loss data so it would be redundant to include it again... is that correct?

I had the same thought. Felt like it would be reflected in actual experience so it would be double counting. Once I got my exam back and re-read some of the questions my thought was that it should be included. Would really appreciate the add'l .75 if they decide to take both though!

This questions is a funny one; it could really be hit or miss for me.

a. correct +1
b. did not use M; just calculated std prem as manual prem either 0 or +.75
c. did not apply 15% discount but applied expense correctly either 0 or +.75