MATH 3640 – Assignment 5
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1) (2 points) Briefly describe why the trending and the developing of losses are mutually
exclusive adjustments.
2) (1 point) Briefly describe the typical treatment of shock losses in ratemaking analysis.
3) (1.25 points) Briefly describe the typical treatment of CAT losses in ratemaking analysis.
4) (8.25 points) Find the Direct Effect of the proposed changes to WC minimum and maximum
indemnity benefits:
 Compensation rate is 80% of the worker’s pre-injury wage
 State average weekly wage (SAWW) is $1,000
 Minimum indemnity benefit is increasing from 40% to 60% of the SAWW
 Maximum indemnity benefit is decreasing from 120% of the SAWW to 100% of the
SAWW
 Distribution of workers (and their wages):
Ratio to Avg
Weekly Wage
Number of
Workers
Total Weekly
Wages
<50% 50 22,500
50-75% 260 169,000
75-100% 300 246,000
100-125% 210 241,500
125-150% 150 208,500
>150% 90 157,500
5) (1 point) Briefly describe indirect effects and provide an example of how they may impact
Workers’ Compensation ratemaking.
Given the following information, answer questions 6 & 7:
 Projected ultimate losses = $2,500,000
 Projected LAE ratio (as a percent of projected ultimate losses) = 12%
 Projected fixed UW expenses = $250,000
 Projected variable expense ratio = 15%
 Projected exposures = 12,500
6) (2.75 points) Calculate the implied Target UW Profit if the Indicated Premium is $350 using
the Pure Premium Method.
7) (2.75 points) Given a total estimated premium of $3,450,000 based on current rates, calculate
the implied Target UW Profit if the Indicated Change is +20% using the Loss Ratio Method.
8) (1 point) Provide one example of a time when it would be more appropriate to use the Pure
Premium Method and one example of a time when it would be more appropriate to use the Loss
Ratio Method.