Spring 2017 Q13 b)

judyohjudyoh
in W-08-Indication
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Why do we want to bring losses to the uncapped level when calculating our indicated rate change? Are the premiums received for losses with a policy limit of 100K or is it for the total losses and that is why we are not capping the losses?

Also, if the historical excess losses and LAE are TRENDED reported loss, how does this impact the way we calculate and apply the xs/non-excess ratio? In other words, if they were not trended, we would have to trend them first and then calculate the multi-year average ratio?

Comments

  • GrahamGraham

    "Why do we want to bring losses to the uncapped level..."

    • The question (part b) asks for the overall rate change. For that you need to use all the data. Then when you do a relativity analysis, you can calculate the excess loss factors and apply them according to the various policy limits.

    "Also, if the historical excess losses and LAE are TRENDED reported loss..."

    • If the excess losses were not trended, you would have to trend them, and that would tend to increase the excess loss ratio (if the trend is positive.) The capped part of a loss that exceeds the threshold wouldn't increase (due to the cap) so all the trending would "go into" the excess part.
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