If an insured group develops loss experience deemed to be 50 percent credible, for rate-making purposes the future pure premium for that group
A) will not be affected,
B) will be based on a formula that gives 50 percent weight to its own loss ratio,
C) will be based on a loss ratio that is 50 percent less than that of the larger group to which it belongs,
D) will be reduced by 50 percent of its former level,
E) none of these is correct.

Question

Quizplus · Accepted Answer

Credibility factors are used in insurance rate-making to determine how much weight to give to a group's own loss experience. A 50 percent credibility means that the group's own loss experience will be given 50 percent weight in calculating the future pure premium.

If an Insured Group Develops Loss Experience Deemed to Be