How does perfect competition work in the long run. (10 points) Insurer ABC provides Health, Specific Stop Loss, and Long Term Disability (LTD) coverage for the individual and employer group

How does perfect competition work in the long run. (10 points) Insurer ABC provides Health, Specific Stop Loss, and Long Term Disability
(LTD) coverage for the individual and employer group markets.
(a) (2 points) Describe considerations for determining credibility levels for:
(i)
Health Insurance
(ii)
Specific Stop Loss
(iii)
LTD
(b)
(/ point) Describe considerations in establishing selected variance factors for
LTD claim credibility.
You are given the following for a small employer group health insurance benefit:
Employee
Gender
Age
1
F
27
M
35
WN
F
59
4
40
M
66
Age-Sex factors for the group:
Age Band
Female
Male
18 – 25
D.80
0.70
26 – 35
0.90
0.80
36 – 45
1.00
0.90
46 – 65
1.25
1.10
65+
1.50
1.40
Turnover rate = 20%
kl = 0.25
k2 = k3 = 0.01
(c)
(3 points) Calculate the credibility factor for this group. Show your work. You are given the following information for a LTD product:
LTD Claim Duration
Selected Variance Factor
4 to 24 Months
4.0
25 to 60 Months
3.0
61 to 120 Months
2.5
Greater Than 120 Months
2.0
750 terminations expected with maximum of 2 years benefit period
The average expected claim is $50,000
.
The standard deviation is $25,000
(d)
(/ point) Describe reasons why LTD claim experience tends to be more volatile
in early durations.
(e)
(/ point) Determine if this block of business is fully credible for valuation
purposes. Show your work.
(f )
(/ point) Calculate the minimum number of claims needed to be considered fully
credible for manual ratemaking. Show your work.
(g) (/ point) Explain why the credibility level is different in (e) versus (f).

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