RMIN 4000 BROWN TEST 2 ACTUAL QUESTIONS

RMIN 4000 BROWN TEST 2 ACTUAL / QUESTIONS

WITH ANSWERS

Pure Premium Method -----Answers---Method that uses rates developed based on past experience. (Incurred Losses + LAE) / # of Exposure Units

Loss Ratio Method -----Answers---Modifies existing rates by comparing the actual loss ratio to the expected loss ratio.

Merit Rating -----Answers---Rates are adjusted upward or downward based on experience.

-Three Types Schedule, Experience, and Retrospective.

Merit Rating: Schedule -----Answers---Each exposure is

individually rated.

Merit Rating: Experience -----Answers---Class rate adjusted

upward or downward based on pass loss experience.

Merit Rating: Retrospective -----Answers---Loss experience

during current policy period determines the actual premium

paid for that period. (Ex: Estimated Sales = $500,000)

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-The premium you pay upfront for your $500,000 in sales is $2,000. At the end of the policy period, records are audited and

your premium is adjusted (ex: if you have a really good year,

you owe more and if you have a bad year, the insurance company owes you money back).

Judgement Method -----Answers---Rates are determined by the judgement of the underwriter (in unusual situations when data is limited).

($43,750,000 + $1,750,000) / 125,000 exposure units = $364 --- --Answers---Selina Kyle is an actuary for the Gotham Insurance Company. She is using the pure premium method of ratemaking to determine the gross rate for the homeowners

peril of fire. She has the following data for the fire peril:

-Incurred Losses $43,750,000 -Loss Adjustment Expenses $1,750,000 -Exposure Units 125,000

What is the pure premium for the peril of fire?

($35,250,000 + $800,000) / 75,000 exposure units = $481 ----- Answers---Selina Kyle is now using the pure premium method of ratemaking to determine the gross rate for the personal auto peril of collision. She has the following data for

the collision peril:

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-Incurred Losses $35,250,000 -Loss Adjustment Expenses $800,000 -Exposure Units 75,000

What is the pure premium for the peril of collision?

Underwriting -----Answers---The process of selecting, classifying, and pricing applicants for insurance.

The purpose is to develop and maintain a profitable book of business.

(Makes the decision whether to accept or reject an application for insurance)

Underwriting Principle -----Answers---Attain an underwriting profit.

Select prospective insureds according to the company's underwriting guidelines.

Provide equity among the policyholders.

-Application -Agent -Physical Inspection (property insurance)

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