2017 Spring - 13 (part c)

NickQZNickQZ
in W-08-Indication

Part C asks for a reason that an insurer might not take the full rate change. I would think that the volatile excess ratio's would cause us to overstate the Indication. However, in the examiner's report it specifically says this is incorrect without any more reasoning. Is this because we Assume full credibility? otherwise I wouldn't be sure of a reason.


Comments

  • GrahamGraham

    Yes, it would have been nice if the examiners' report had explained more fully why a volatile excess ratio isn't a valid reason. I think a valid explanation for not accepting that reason would include these points:

    • Excess losses are generally always volatile so that by itself would not be a valid reason for not taking the full rate change. If it were a valid reason then we would NEVER take the full indicated rate change.
    • Even though the excess losses are volatile, they are averaged over several years to get an average excess loss load so the volatility would be diluted.

    In any case, the other reasons provided in the examiners' report for not taking the full rate change are straightforward (to remain more competitive for example) so if a question like this comes up again, stick to those other reasons.

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