ch8 doubts

keshav1996keshav1996
in W-08-Indication
  1. What does this mean - "Pure premium method cannot be used if looking at a certain variable that is highly correlated with another. PP method assumes uniform dist between variables. Would need to instead use Adjusted Pure Premium method. "
  2. Should building rent of the insurer's office be considered under ULAE or General Expenses (under U/w expenses)?
  3. Fall 2019 (Q5) --> #1 Can we trend both reported losses as well EP (while also on-levelling it) the reported BF method and calculate the Ult Loss and then divide by trended OLEP to calculate ULR? In other words, would trending before development make a difference. (I understand that for this particular question it make a difference and we can't do so due to presence of tail factor. Am I right?), #2 Why do we trend the premium to CY 2020 end and not middle of 2020? Is that because we have been given EP and not WP, so we trend till AED instead of AWD of projection period?
  4. Spring 2017 (Q13) --> #1 In part (b), shouldn't we exclude the Excess Loss of for CY 2012 while estimating the Excess Ratio as its very high and distorting? #2 In part (c), we have been asked why wouldn't the insurer implement the full rate change obtained in part (b). Would it be okay to give reason behind this as the lack of computer resources with the insurer? I think this reason is better suited if the insurer decides not to implement rate change at all.

Thanks.

Comments

  • GrahamGraham

    Question 1: What does this mean - "Pure premium method cannot be used if looking at a certain variable that is highly correlated with another. PP method assumes uniform dist between variables. Would need to instead use Adjusted Pure Premium method. "

    Question 2: Should building rent of the insurer's office be considered under ULAE or General Expenses (under U/w expenses)?

    • It is a general expense that also falls under ULAE. Those categories are not mutually exclusive. It's just that expenses are categorized a little differently for pricing versus reserving.


  • GrahamGraham

    Question 3: Fall 2019 (Q5) --> #1 Can we trend both reported losses as well EP (while also on-levelling it) the reported BF method and calculate the Ult Loss and then divide by trended OLEP to calculate ULR? In other words, would trending before development make a difference. (I understand that for this particular question it make a difference and we can't do so due to presence of tail factor. Am I right?), #2 Why do we trend the premium to CY 2020 end and not middle of 2020? Is that because we have been given EP and not WP, so we trend till AED instead of AWD of projection period?

    • I'm sorry, I don't understand your question. I think we may be looking at different problems. Unless I've misread something, the problem you referenced, 2019.Fall Q5 is about loss trending.

    Question 4: Spring 2017 (Q13) --> #1 In part (b), shouldn't we exclude the Excess Loss of for CY 2012 while estimating the Excess Ratio as its very high and distorting? #2 In part (c), we have been asked why wouldn't the insurer implement the rate change obtained in part (b). Would it be okay to give reason behind this as the lack of computer resources with the insurer? I think this reason is better suited if the insurer decides not to implement rate change at all.

    • The 2012 value should not be excluded. It should be spread over multiple years. That's the idea behind the method. High and low values for particular years are all included in a multi-year average. This has the effect of smoothing the effect of bad or good years.
    • This is sample answer 4, so presumably "lack of resources" is an acceptable answer for not taking the indicated change. I do not think it's the best answer however, and I'm a little surprised they accepted it. The first 3 sample answers are better because they relate to the very high indication (almost 30%) that was calculated in part (b). It's very unlikely an insurer would want to take such a large change for competitive and regulatory reasons. (There was nothing given in the problem to indicate a lack or resources for the insurer, and this rate change looks pretty straightforward, aside from the large indicated change.)


  • keshav1996keshav1996

    Hi,

    For doubt Q3, I am really sorry, it's Fall 2019 Q7 that I'm talking about.

    Thanks.

  • GrahamGraham

    Question 3: Fall 2019 (Q7) --> #1 Can we trend both reported losses as well EP (while also on-levelling it) the reported BF method and calculate the Ult Loss and then divide by trended OLEP to calculate ULR? In other words, would trending before development make a difference. (I understand that for this particular question it make a difference and we can't do so due to presence of tail factor. Am I right?), #2 Why do we trend the premium to CY 2020 end and not middle of 2020? Is that because we have been given EP and not WP, so we trend till AED instead of AWD of projection period?

    • #1: Without seeing your calculations, I'm not quite sure what you're asking. The solution to this problem is straightforward: It develops reported losses to ultimate, then trends those ultimate losses forward to the effective period. The premiums are dealt with separately by on-leveling and trending. Once you have the appropriate loss and premium for each year, you can calculate the ULR. (The only twist is that you have to exclude the fixed expense ratio for 2017 because of the one-time cost of the new policy system.)
    • #2: If new rates are effective Jan 1, 2020, and will be in effect for 1 year then the "trend-to" date is the average earned date for the period Jan 1, 2020 to Dec 31, 2020, which would be Dec 31, 2020. (The "trend-from" date would be the average earned date in each of the years 2016, 2017, 2018, which would be the mid-point of each of those years.)
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