Fall 2017 Q1&2
I am constantly confused about calculating the trend period for premiums. In Fall 2017 Q1, for the future trend part, I calculated the trend period as average written date of latest period (15/11/2016) to average written date of policies written in future period (7/1/2018) which turned out to be correct. However, I used the same logic in Q2 and calculated trend period for CY2016 from 7/1/2016 to average written date for policies written in future period (4/1/2018). This turned out to be wrong as the have taken the trend to date as 10/1/2018 which is the average earned date of policies written in future.
I would like to know if there is any structured way to think to arrive at the trend period. Please give all the cases and how to arrive at trend period. (By all the cases I mean, for annual and semi-annual policies, written and earned premium, calendar year and policy year). In short, I am finding it very confusing to select whether to use average written date or earned date.
Comments
Q1 required 2-step trending but Q2 didn't specify 1-step or 2-step trending. And in Q2, there was no mention of historical trends being different from future trends so for Q2, you were allowed to use 1-step trending. And in fact all 3 sample solutions for Q2 used 1-step trending.
So my answer to your question would be to just use 1-step trending for Q2. Does that help clear things up?
(I'm not sure how you know your answer to Q2 is wrong because none of the sample solutions used 2-step trending.)
Thanks for the response.
Maybe the question I asked was not worded properly, sorry for that. My question was not on when to use one step or two step trending. I wanted to understand the thought process by which we arrive at trend period (for either 1 step or 2 step trending). When to use average earned date vs when to use average written date of historical or future period.
(In the solution sample 1 of Q2, at the bottom they have given notes where they have mentioned the trend period is from 7/1/CY to 10/1/18. I had taken it to be from 7/1/CY to 4/1/2018. This is how I got to know my answer is wrong. As you can see, I have taken the average written date of future period, whereas in solution has average earned date of future period)
Oh, ok. The reason they used AED (Average Earned Date) for the end of the trend period is that the START of the trend period is based on EP so they used AED for that as well.
The rule is that you have to be consistent. That means use AED for both the start and end of the trend period OR use AWD for both the start and end. But you can't mix them.
See the highlighted section rom the wiki below: