Hi tutors, I hope you are well. When applying the claims inflation and premium rate changes for this question, the examiners have considered the changes from the start of UWY of 2009. Is it wrong if I have done the adjustment from 2007 UWY then rolling forward from there? That is my table looks like that: U/W Year 2007 2008 2009 ULR 24.60% 23.60% 27.70% Inflation 1.050 1.103 1.158 Rate Change 1 1.06 1.113 Adjusted ULR 25.83% 24.55% 28.81% Many thanks for your time.
Hi Darshan You need to adjust the prior year loss ratios to make them applicable for 2010 by adjusting for claims inflation and premium rate changes between the underwriting year in question and 2010. So the 2009 underwriting year loss ratio needs to be adjusted for one years worth of claims inflation and the premium rate increase from 2009 to 2010. Similarly, the 2008 underwriting year loss ratio needs to be adjusted for two years worth of claims inflation and for the premium rate increases from 2008 to 2009 and then from 2009 to 2010.
How do they get the adjusted ULR figures. I get the rest of the points except how they derive the figures of adjusted ULRs (25.59% 23.38% 27.70%)
Take the original loss ratio, multiply by the (cumulative) inflation and divide by the (cumulative) rate change.
