Please see attached case study. It needs to be completed by tonight.Respond to the five questions listed in complete sentences, including sufficient detail to ensure your instructor understands both your specific response as well as how you reached that conclusion.Your Name Here
RMI450 Week 10 Case Study (0-36 points)
Today’s Date Here
Title: Portfolio Profitability Management
Instructions
•
•
•
Assume the persona described in the Case Background details.
Complete the questionnaire below in compliance with the Vice President’s direction indicated in the Case
Background.
Save your completed, spell-checked Word document and Submit it as directed in your course.
Grading Rubric
Criteria
Unacceptable
Acceptable
Proficient
Question Responses
Provided
More than 50% of
responses are missing
All responses are present
All responses are present
(2 pts total)
(0 points)
(2 points)
(2 points)
Question Response
Content Accuracy
Response is completely
incorrect or is missing.
Response is mostly, but
not fully, correct.
Response is fully correct.
(16 points, 4 points per
question)
(0-10 points)
(11 – 12 points)
(13-16 points)
Question Response
Explanation
Response doesn’t include
explanation for
conclusion reached
Response includes a lessthan-complete
explanation for
conclusion reached
Response includes a
complete explanation for
conclusion reached
(0-10 points)
(11 – 12 points)
(13-16 points)
Spelling & Grammar
Multiple errors
Only one or two errors
No errors
(2 points total)
(0 points)
(1 points)
(2 points)
(16 points, 4 points per
question)
Case Background
You are a Personal Lines Product Manager at the Great Lakes Mutual Insurance Company. It is your
responsibility to manage the profitability of Great Lakes’ auto and homeowner portfolio in the
company’s four states: Ohio, Michigan, Pennsylvania and Illinois.
You are sitting for an interview with a reporter from the Insurance Journal Magazine in a couple of
weeks. To save time during the actual interview, the reporter emailed you the questionnaire below and
asked if you could have it completed when he arrived.
You shared the questionnaire with your Vice President and she asked that you not only answer the
questions, but to avoid follow-up emails or phone calls, that you also explain your answers with as
much detail as required to ensure the reporter fully understood how you arrived at your answers.
You are about to begin completing the questionnaire.
Questionnaire
Section One: General Background Questions
Question 1a
I know insurance is a highly regulated industry, and regulatory changes can significantly affect
insurers. What would be one example of a regulatory change that affects insurance company
portfolio management?
[Replace this text with your response.]
Question 1b
Underwriting results can be affected positively by controlling expenses. I understand that
variable underwriting expenses are those directly related to premium volume. Can you share a
method, though, of reducing fixed costs?
[Replace this text with your response.]
Question 1c
Affordability has become a crucial social objective in determining proper personal lines
automobile rates. What is a strategy to help ensure the affordability of these insurance rates?
[Replace this text with your response.]
Section Two: Ratemaking Basics
Question 2a
What is the portion of the rate that covers projected claim payments and loss adjusting
expenses called?
[Replace this text with your response.]
Question 2b
I’ve read that pure premiums reflect the actual exposure to loss and becomes part of the base
rate. How is the base rate developed from the pure premium?
[Replace this text with your response.]
Question 2c
In pricing personal lines insurance, it’s my understanding that there is a number by which a base
rate is multiplied to reflect the relatively higher or lower loss exposure of one homogeneous
group compared to another. Is that true? If so, what is that number called?
[Replace this text with your response.]
Question 2d
An actuary I met at a recent conference told me that there is one main component used in
determining adequate insurance rates. If that’s true, what is that component?
[Replace this text with your response.]
Section Three: Ratemaking Questions
Question 3a
What is the portion of the rate that covers projected claim payments and loss adjusting
expenses called?
Actuaries analyze personal automobile claim data by driver age during the ratemaking process. If
I am analyzing the data below, what conclusion could I draw?
Driver Age
Number of losses
Driver Years
Under 25
100
500
26 – 50
50
500
Over 75
75
500
[Replace this text with your response.]
Question 3b
Actuaries do the same thing during the homeowner ratemaking process. When I first analyzed
the data below, I concluded that losses in year 4 will likely be 12,000 House Years, but I have
been told that is not an appropriate conclusion. Why not? What is an appropriate conclusion I
could draw about Year 4?
Year
Losses
House Years
Frequency/100 House-Years
Year 1
401
10,000
4.01%
Year 2
487
10,500
4.64%
Year 3
529
11,000
4.8%
[Replace this text with your response.]
Question 3c
Catastrophic exposures must be managed if a homeowner book of business is going to be
profitable. Can you explain to me what redlining is and why it is prohibited in most states as a
catastrophic exposure management tool?
[Replace this text with your response.]
Section Four: Example Portfolio Profitability Questions
Question 4a
As part of Insurer A’s rate analysis and potential pricing adjustment, the actuarial team has
determined that the current year base homeowner’s rate should have been $20.00. The
frequency rate relativity factor and severity rate relativity factor have been calculated as 1.05
and 1.08 respectively. Applying these rate relativity factors will bring the adjusted base rate to
be what?
[Replace this text with your response.]
Question 4b
Jancy Insurance Company (Jancy) has historically maintained profitable results on its
homeowners book. Expenses and loss frequency have remained steady over the last three
years, but loss severity has begun to increase. The loss severity has increased by 3% each of the
last two years. If Jancy’s product manager calculated an adequate base rate of $20.00, what is
the adjusted base rate after applying the appropriate severity rate relativity factor?
[Replace this text with your response.]
Question 4c
The actuaries for Mellfor Insurance Company (Mellfor) are analyzing the personal automobile
year-end results for the last three years. Based on the results detailed below, what is Mellfor’s
average loss costs for personal auto over the past three years?
Elements
Exposure Units
Earned Premium
Incurred Losses
Number of Losses
Loss Ratio
Two Years Prior
1000
$800,000
$600,000
200
75%
[Replace this text with your response.]
Prior Year
1100
$880,000
$704,088
231
80%
Current Year
1320
$950,400
$1,030,715
343
108%
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