When do we have to rebase the indicated relativity?
In 2017 SPRING #7,
I normalized both the current and indicated relativities, then credibility weighted them, but before I off-balanced I thought we were suppose to rebase the relativities. And since the current relativity for Class A was 1, I assumed that level is the base.
In the wiki article the pure premium approach mentions to rebase the indicated relativity after normalizing it. But in the solution for this exam question, we don't.
Do we only rebase the relativities if in the question they mention which variable is the base?
Comments
If I understand correctly what you did, if you rebase the indicated relativities before calculating the rate change (and doing the off-balancing) then the rate change for the base class would always be 0.0% which wouldn't make sense. (It isn't that the question didn't specifically say that the base class was A.)
Note that in this problem, they weren't specifically asking you for the new relativities. If that had been the question, then your final step would have been to rebase the indicated relativities.