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Kerper and Bowron Develop Actuarial Techniques to Analyze Vehicle Service Contracts

February 21, 2007

Birmingham, Ala. — Kerper and Bowron has developed new actuarial techniques for the analysis of vehicle service contract claims. These methods have been published in the CAS Ratemaking Forum and will be presented at the CAS Ratemaking Seminar on March 8, 2007.

John Kerper of Kerper and Bowron notes that “current techniques rely on analyzing emerging experience over time. In addition, current techniques also depend on a stable set of contracts, with similar makes, underlying warranties, and coverages. Since these factors change over time, it is difficult to use historical data for projections.”

The new technique is able to incorporate the rich set of data that vehicle service contract writers maintain.

Lee Bowron of Kerper and Bowron explains that “the new analysis offers several advantages over current actuarial practice. First, the technique is done at the individual contract level. This allows the projection to be responsive to changes in the underlying book. Second, the projection is responsive to the individual characteristics of the contracts such as the mileage when issued, the make, the coverage, and the underlying warranty.”

“As an example, General Motors recently increased the Powertrain warranty on new vehicles from three years/36,000 miles to five years/100,000 miles. With the new technique, this change can be easily modeled.”

The CAS Ratemaking Forum recently published this analysis in their latest volume, which can be found at http://www.casact.org/pubs/forum/07wforum/

In addition, John Kerper and Lee Bowron will be presenting at the 2007 Ratemaking Seminar in Atlanta on March 8, 2007.

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