An Algorithm for Premium Adjustment with Scarce Data

An important part of performing a loss ratio type of rate adequacy study is the ability to restate historical earned premiums at the level implied by the present rate structure. Of course, the most straight-forward and desirable way of accomplishing this restatement is by the extension-of-exposures method. That is, the historical book of business is actually rerated by using today’s rate book. With the power of present computers such a procedure is practical if the required exposure information exists in a reliable form. However, the practicing actuary may find that for many lines of insurance reliable exposure information in the required level of detail is not available. Further, the extension-of-exposures procedure requires specialized data processing talents, which may not always be readily available.