FALL 2015, Q9
I'm wondering how the off-balance relativity of 0.9407 was obtained for territory B in the examiners report ?
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I'm wondering how the off-balance relativity of 0.9407 was obtained for territory B in the examiners report ?
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Hi @pactuary
I've had a medical emergency today (Thursday) but I will make every effort to answer you question over this Fri/Sat/Sun. Sorry for the delay.
@Graham
Ok, I'm back.
Referencing sample solution 1:
Thank you Graham !
You're welcome!
Graham - I initially calculated the current premium in this problem by re-basing the territory relativities to Territory B which gives you a 0.545 and 1.000 factor. My current premium will not match what's in the examiner report but I can still solve for territory relativities that satisfy management's concern. However I'm not sure I would earn full credit since none of the sample solutions have a current premium equal to 599,500. Unless you disagree, how would we know not to re-base relativities which is usually our first step in these kinds of problems? Thanks.
In these problems, sometimes what you're supposed to do is a little fuzzy. However, I don't think rebasing the relativities as a first step would have occurred to me - I would have taken the current relativities "as is" for calculating the premium. (Rebasing is usually done at the end after the indicated relativities have been obtained. I don't know why they didn't have a base for territory for current relativities. It wasn't a very well constructed problem. See the footnote in the BattleTable.)
That leads us to another hint within the problem that rebasing at the beginning probably isn't the way to go. The current relativities for "territory" didn't have a base level to start with. If you had chosen Territory A as the base level instead, you would have gotten a different premium, and the total premium shouldn't depend on which territory is selected as the base. By choosing Territory B as the base, you're making an assumption that changes the result.
As I mentioned above, usually rebasing is done at the end after you've calculated the indicated relativities, but you didn't have to do that here. I suppose you could have but then you would also have adjust the base rate to make sure the change is still revenue-neutral.
I guess my final thought on this is not to over-complicate your solution. Easier said than done because sometimes they throw in a weird twist. If you had done everything else correctly, you would have gotten most of the points. Maybe they would have deducted 0.25.
Thanks Graham, very helpful! I misspoke in saying that the first step is to re-base territory relativities. I wasn't distinguishing current relativities from indicated relativities. What I should have said is the first step for some of these implementation-related problems (using Alice's solution to the first extension of exposures problem in the Wiki) is to rebase the indicated relativities or to double-check that the indicated relativities have been re-based. So because I had been drilling that into my head so often, I just immediately started solving this problem without thinking it all the way through. And in this problem, all we had to work with is current relativities. Let me know if I've said anything wrong above.
Ok, I see where you're coming from. Sounds like you've got it now.