CAS Exam 8 key terms

A multiplicative factor applied to manual premium that adjusts for the insured's own loss experience relative to what was expected, crediting better-than-average risk and surcharging worse-than-average risk.

The weight given to an insured's observed experience when combined with a complement of manual or expected loss information, reflecting how much predictive signal the observed data carries.

A number between zero and one expressing the proportion of total weight assigned to the insured's own experience, with the remainder assigned to the complement.

The portion of the estimated rate or premium not taken from the insured's own data, typically the manual rate or expected loss level, weighted by one minus the credibility factor.

A least-squares credibility method that sets the credibility factor as the ratio of expected process variance to total variance, producing weights based on the variance structure of the underlying risk classes.

An extension of Bühlmann credibility that allows each observation to carry a different exposure weight, so larger risks contribute more information to the estimate of the class mean.

The average of the within-risk-class variances across the hypothetical mean structure, representing variability a risk would show even if its true mean were known exactly.

The variance across risk classes of the true underlying means, measuring how much the classes genuinely differ in expected loss before any random noise is considered.

The true, unobservable expected loss level for a particular risk class, treated as a random draw from the distribution of class means in credibility theory.

The premium produced by applying published class rates and rating factors to an exposure base before any individual experience adjustment is applied.

The unit of risk used to multiply a rate and produce premium, such as payroll, sales, vehicle count, or earned exposure units, chosen to track expected loss cost.

The portion of the rate intended to cover expected losses and loss adjustment expense per unit of exposure, excluding fixed expenses and profit.

The estimated expected loss and loss adjustment expense per unit of exposure, often developed from historical data and used as the starting point for rate construction.

A multiplier applied to reported losses at a given maturity to estimate the losses those same claims will ultimately reach once all development is complete.

A multiplier that projects historical loss costs forward to the average date of the policy period being priced, reflecting both claim frequency and severity changes.

A factor used to restate historical premiums to the rate level that would have applied under current rates, removing the effect of past rate changes.

The process of adjusting historical premium or loss data so that all periods are expressed at a consistent level of rates before any indication is computed.

The estimated change in overall rate level needed to achieve a target loss ratio or profitability level, derived by comparing indicated and current loss costs.

The share of premium available for losses and loss adjustment expense after variable expenses, fixed expenses, and profit are removed, computed as one minus the expense ratio.

The addition to pure premium or loss cost needed to cover underwriting, commission, premium tax, and other expenses, plus a provision for profit and contingencies.

Incurred losses and loss adjustment expense divided by earned premium for a defined period, used to gauge whether rates are adequate or excessive.

A ratemaking procedure that adjusts an individual insured's premium using its own past loss experience, producing a modification that reflects how it compares to expected results.

A debit and credit system in which an underwriter adjusts premium for specific risk characteristics not captured by class rates, such as housekeeping or safety features.

A method in which an underwriter or actuary sets the rate using informed opinion rather than a formal statistical formula, common for large or unusual risks.

A rating plan in which the final premium depends on the insured's losses during the policy period, subject to a minimum and maximum premium, balancing incentive with protection.

The ratio of expected limited losses to expected unlimited losses, used in retrospective and excess rating to account for capping losses at a specified threshold.

A factor applied in experience rating that adjusts for the portion of large losses excluded from the calculation, keeping the modification responsive to frequency rather than severity outliers.

Any rating approach that adjusts class-based premium for characteristics of a single insured, including experience, schedule, and retrospective rating plans.

The process of grouping risks with similar expected loss characteristics into classes and assigning each class its own rate or rate relativity.

The factor expressing the rate for a particular class relative to a base class, used to build a rate structure from a set of class-level loss costs.

A factor reflecting the relative expected loss cost of a geographic territory compared with a base territory, applied multiplicatively in the rating algorithm.

The ordered formula that combines base rate, class, territory, and other factors plus any minimum premium rule to produce the final premium for a policy.

The amount of each loss the insured retains, so the insurer pays only losses above that amount, reducing expected loss cost and the resulting premium.

The reduction in premium or rate given for a deductible, reflecting the expected losses removed from the insurer's responsibility by the retained amount.

The ratio of expected loss cost at a higher policy limit to the expected loss cost at a basic limit, used to price limits above the base.

The proportion of expected unlimited losses eliminated by a deductible or limit, equal to one minus the ratio of limited expected losses to unlimited expected losses.

A published set of factors by limit showing the relative cost of higher limits, typically built from a loss severity distribution and adjusted for expenses and risk load.

A charge added to expected losses to compensate for the uncertainty and capital cost of bearing risk, often larger for volatile or high-limit exposures.

The component of the rate intended to provide a fair return to capital, often expressed as a percentage of premium or as a return on surplus target.

The ratio of underwriting expenses to written or earned premium, split into variable expenses that change with premium and fixed expenses that do not.