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> From: Budde, Paul <Paul_Budde@blanch.com>
> To: 'studygroup6@lists.casact.org'
> Subject: Homan - AOI relativity curves
> Date: Thursday, April 30, 1998 1:37 PM
>
> In exhibits 19 and 20 Homan revises the AOI relativity curve to produce
> a proposed curve. He then factors in an off-balance factor calculated
> as
>
> F1 = 1/ (SUM (WP[i] * proposed relativity[i] / current relativity[i])),
>
> where the sum is over all levels of amt of insurance, and WP[i] =
> percent of written premium at that particular level of insurance.
> Multiplying the ratio (proposed relativity/current relativity) for each
> level of insurance produces the new change in relativity.
>
>
> Question 1: In his example, for the lowest level of insurance we now
> have a 31.2% increase instead of a 15.2% increase, with the additional
> amount being due to the off-balance factor. The factor he calculates is
> 1/0.878. But do we really change the proposed AOI curve by this amount
> (1/0.878)? If so, then our relativity at the base level would no longer
> be 1.00 (it would be 1/0.878). So do we leave the proposed curve alone
> and apply the 1/0.878 to the base rate (and hence all other rates)? In
> this latter case, we were actually done with the relativity curve
> without calculating the off-balance, but we need the off-balance
> calculation in order to get the base rate.
>
>
> Question 2: It seems to me the adjustment factor ought to be
>
> F2 = SUM( WP[i] * current relativity[i])/F1
>
> unless this numerator were one already. (I'm not about to argue with
> Homan with a week to go, so I can live with using F1 until I really need
> to do this in my job.) Using F2 would also be more in line with
> McClenehan's off-balance factor for relativities. Any comments?
>
> Thanks,
> Paul