terr a current relativity 1.0, on level earned premium 125000,
experience loss and allocated 100000.
terr b current relativity 1.25, on level earned premium
250000, loss and alae 300000
terr c current relativity .75, on level premium 300000,
experience loss and alae 200000.
what range does off balance factor fall in ?
I am having trouble following the solution (by the way this stuff is
similar to finger).
anyway as on page 64 foundations, ASSUMING TERR A is the BASE TERRITORY
we get territory a on level earned premium for terr a,b,c respectively
as (125000/1.)=125000 for a; (250000/1.25)=200000 for b; and
(300000/.75)=400000 for c. So far I agree with answer. Next the loss
ratios using terr a on level premium for terr a,b, and c are
(100000/125000)=.8;(300000/200000)=1.5;and (200000/400000)=.5 as given
in the solution no problem.
Now this is where I get confused. SInce terr a is still the base
territory, I would argue that the indicated relativities to terr A now
become
for terr a (.8/.8) = 1.0 since terr a still the base
for terr b (1.5/.8) = 1.875;
for terr c (.5/.8) = .625.
I think this is consistent with column (7) page 64 in the FOUNDATIONS.
Mcleanahan says in practice these indications would be credibility
weighted with the current relativies, but we will assume full
credibility.
Finally to determine the off balance factor assuming revenue neutral,
mcleanahan balances to the on level earned premiums 125000,250000, and
300000 (NOT the terr a on level earned premiums).
so we have the sum of earned prem(new rel/old rel);
so we have the sum 125000(1./1.)+250000(1.875/1.25)+
300000(.625/.75) = 750000;
so, in order to be revenue neutral to the on level earned premium of
125000+250000+300000=675000 the off balance factor would be
675000/750000= 0.9 answer b
not .931 as given in the solution.
Is anyone else with me on this? I would appreciate some feedback.
Am I the only one confused by the finger and mcleanahan
proceedures for off balance? there are sooooo many little variations.
Thanks for your help
Bill g
billg5@yahoo.com
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