Explain what an exposure base is and the role it plays when rates are developed.

Free CAS Exam 5 (Basic Ratemaking and Reserving) lesson in Ratemaking. 13 min read, ~2,012 words.

An exposure base is the unit of risk that premium is charged per (car-year, \$100 of payroll, house-year, sales revenue). A good exposure base is proportional to expected loss, practical to obtain and verify, and consistent with historical precedent. Rate equals pure premium plus fixed expense, divided by one minus...