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Two key points to remember about EXPOSURE adjustment in pure premium
ratemaking problems are:
* If you adjust earned exposures to the base class level, the ratio of
the resulting pure premiums will give you indicated CHANGES TO THE
CURRENT class relativites (e.g. Finger).
* If you DO NOT adjust earned exposures to the base class level, the
ratio of the resulting pure premiums will give you indicated class
relativites (e.g. Hurricane).
Alternatively, two key points to remember about PREMIUM adjustment in
loss ratio ratemaking problems are:
* If you adjust earned premiums to the base class level, the ratio of
the resulting loss ratios will give you indicated class relativites
(e.g. McClenahan).
* If you DO NOT adjust earned premiums to the base class level, the
ratio of the resulting loss ratios will give you indicated CHANGES TO
THE CURRENT class relativites (e.g. Finger, Homan).
Either way you should get the same answer (provided all the
assumptions are the same, etc). Note that in this context, territory
is also a "class".
Try doing McClenahan's example on Page 64 WITHOUT adjusting the Earned
Premiums, and you will get the indicated CHANGE to the current
relativities. Apply this change to the current relativities and you
will get the same answer as he gets.
Hope this helps.
Mike
----------
From: Gardner, Brad
Sent: Tuesday, February 17, 1998 4:54 PM
To: studygroup6@lists.casact.org
Subject: Classification/Territorial Ratemaking
McClenahan states- If the loss ratio method is used for
class/territorial ratemaking, the on-level earned premium for each
classification must be adjusted to the base classification level
before
the experience loss ratios are calculated (page 63).
Does Finger make this same adjustment when the loss ratio method is
used? I know Finger uses base exposures for the pure premium method.
Same idea different method??????
Homan (Homeowners) uses the loss ratio method for territorial
indications yet I do not think he makes an adjustment to the premiums
to
be on a base territorial level??? Should premiums be adjusted???
In the hurricane paper, a pure premium (loss costs) method is used
for
territorial indications. Are base exposures used here???? Should base
exposures be used??
Please Help!
Brad
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