Revision as of 18:32, 25 July 2024 by Admin (Created page with "You are given the following information: *Fixed underwriting expenses are negligible. *Variable expenses are stable and equal 10% of premium. *Projected pure premium, including LAE, for the forecast period equals $1,500. If the indicated rate per exposure unit equals $2,000, determine the target profit percentage. <ul style="list-style-type:upper-alpha" class ="d-none"> <li>10%</li> <li>15%</li> <li>20%</li> <li>25% </li> <li>30%</li> </ul>")
ABy Admin
Jul 25'24
Exercise
You are given the following information:
- Fixed underwriting expenses are negligible.
- Variable expenses are stable and equal 10% of premium.
- Projected pure premium, including LAE, for the forecast period equals $1,500.
If the indicated rate per exposure unit equals $2,000, determine the target profit percentage.
- 10%
- 15%
- 20%
- 25%
- 30%
ABy Admin
Jul 25'24
According to the pure premium method, the indicated rate per exposure unit equals
[[math]]
\overline{P_I} = \frac{\overline{L + E_L} + \overline{E_F}}{1 - V - Q_T} = \frac{1500}{0.9 - Q_T}.
[[/math]]
Since the indicated rate per exposure unit equals $2,000, then the formula above implies that the target profit percentage must equal 15%.