Re: Homeowners Insurance Pricing-off-balance

Beth Sweeney ( (no email) )
Wed, 6 May 1998 16:24:09 -0500

McClenahan's Off-Balance is (1/1+avg change) which is then multiplied to
the the overall change and base to get new base. For Homan's off-balance
you need to divide the overall change by the off-balance - same answer.
Your just have to remember when asked for the off-balance factor, which
article it is referring to.

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> From: JChen@insurance.ca.gov
> To: studygroup6@lists.casact.org
> Subject: Homeowners Insurance Pricing-off-balance
> Date: Wednesday, May 06, 1998 12:23 PM
>
> 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.