Economics

A general insurance company writes professional indemnity insurance for solicitors on a losses-occurring basis. The company insures a large law firm whose policy is due for renewal soon. The following data has been provided: Policy Notified Policy Excess Limit per Claim Year Claims (EQQ0) (EOOO) 2008 764 50 150 2009 638 50 150 2010 318 25 100 2011 402 25 100 2012 140 25 100 2013 See below 50 100 Calendar Average Number of Year Solicitors in Year 2008 210 2009 208 2010 215 2011 214 2012 210 2013 213 The following information has been supplied for the data above: All policy years run from 1 July to 30 June. There is no aggregate limit on the total amount of claims in a policy year. Notified claims are as at 31 March 2013. The following assumptions apply: Claims severity inflation is +5% per year. Claims frequency inflation is +2% per year. Claims development factors are as in the following table: Claims Notified as % of Policy Ultimate Year (as at 31 March 2013) 2008 90% 2009 80% 2010 65% 2011 45% 2012 15%The following increased limit factors are applicable to all policy years without the need for adjustments for severity trends: Limit (EOOO) ILF 25 0.50 50 0.70 100 1.00 125 1.15 150 1.25 200 1.40 Estimate the loss cost for the 2013 policy, showing all workings and justifying any further assumptions that you make. [13]