Homeowners Insurance Pricing-off-balance

( JChen@insurance.ca.gov )
Wed, 6 May 98 10:23:22 PDT

Study Manual page 155 question D8.
Distribution Policy Size Current New
of Adjusted Relativity Form Form
Form EP Off-Balance Relativity Relativity
1 .35 1.011 0.65 0.7
2 0.55 1.03 0.87 0.85
3 0.08 1.045 1. 1
5 0.02 1.35 2.1 1.4

The overall indicated rate level change is 15%. Calc. off-balance adjustment
for use in calculating revised manual premium.

Answer in the book:
(1) Calc. the premium size off-balance factor
PSOBF=0.35*1.011+0.55*1.03+0.08*1.045+0.02*1.35=1.031

(2) Calc. the form relativity off-balance factor
Sum of (premium Distribution)*(new Form Relativity)/(Current Form Relativity)
FROBF=0.35*0.7/0.65+0.55*0.85/0.87+0.08*1/1+0.02*1.4/2.1=1.008

(3) combined off-balance
COB=(1)*(2)=1.031*1.008=1.039

Question:
Why (2) is not (premium distribution)*(current form rel.)/(new form rel.)
from Page 27 Questions C5 and C6, It seems Current rel. should be on the top
of the factor.