Casualty Actuarial Society


CAS Committee on Ratemaking Announces Ratemaking Contest

The CAS is sponsoring a ratemaking contest for the best actuarial solution(s) to a real-life private passenger auto insurance ratemaking problem. Prize amounts up to $3,000 will be available for the best solution(s). The prize(s) will be awarded at the 1999 CAS Annual Meeting in San Francisco, California. Both CAS members and non-members are invited to participate.

Contestants will calculate rate level indications for a private passenger automobile assigned risk plan (the Plan). Statewide rate level changes by coverage, as well as changes by rating territory, driver class and driver surcharge class are to be determined.

The background for this problem begins in late 1991 when the Plan’s population began increasing significantly following the passage of a compulsory liability statute. Then, in 1995, tort reforms were passed in the legislature which may or may not have affected the claims experience of the Plan. Also in 1995, the Plan’s population took a nose-dive following a major rate level increase. Additionally, changes in the statistical agent which supplies the Plan’s ratemaking data raised issues of data quality, consistency and availability. Some, or all, of these changes may have affected the determination of premiums at present rates, loss trend factors, the ratemaking data base and credibility factors, and the rating factors for driver classes, rating territories and driver surcharges. The challenge is to develop a ratemaking methodology that meets all of the actuarial ratemaking principles while fairly accounting for the effects of all the changes and external influences.

Each contestant will be provided with the following:

  • Rate change history
  • Historical premium and loss data
  • Historical distributions of business and loss data by driver class, rating territory, and driver surcharge group
  • Underwriting expense data
  • Data relevant to determination of appropriate profit provision
  • Data relevant to determination of appropriate contingency provision
  • Historical Plan population data
  • Relevant statutory rate standards
  • Summary of tort reforms, alternate tort reform cost estimates, and Insurance Commissioner's tort reform findings
  • Findings of Insurance Commissioner on significant issues from past Plan rate hearings

The latest premium and loss data available will be through December 31, 1996. Contestants will assume they are preparing a rate change calculation in the Spring of 1998 for rates to be effective January 1, 1999.

Procedures and Timetable

The following procedures and timetable will apply to the contest:

  1. By April 1, 1999, contest entries requesting the packet of ratemaking information must be submitted to the Game Master, who will prepare and deliver the contest data to all entrants. Entrants may be individuals or teams of actuaries. Requests should be submitted to:

    Casualty Actuarial Society
    1100 North Glebe Road, Suite 600
    Arlington, VA 22201
    Attn: Ratemaking Game Master
    Fax: (703) 276-3100
  2. During the course of the contest, questions concerning the data and information will be answered by the Game Master. All questions and answers will be shared with all contestants so that all entrants are working with the same information.
  3. By July 1, 1999, entries must be returned to the Game Master at the address above. The entries to the contest should include the recommended rate level indications and an actuarial report that describes the actuarial ratemaking methodology used along with the actuarial justification for the models, techniques or methods selected. All contest entries received by July 1, 1999 will be forwarded to the panel of judges that will judge the entries anonymously.
  4. By September 1, 1999, judging of contest entries will be completed. The prize(s) for the best actuarial solution(s) will be awarded at the 1999 CAS Annual Meeting, November 14-17, 1999 in San Francisco, California.
  5. Judging will be conducted by a panel of three actuaries. The judges will be experienced in automobile ratemaking, with no connection to the Plan or the automobile insurance market in that state. The judging criteria will be based upon the application of actuarial ratemaking principles and standards of practice to the problem presented, as well as how well the actuarial report justifies the methods used to calculate the rate level indications.

More information concerning the contest, including a preview of the packet of ratemaking data, may be obtained by attending the session entitled, "The Contest" at the upcoming CAS Ratemaking Seminar, March 11-12, 1999 in Nashville, Tennessee.