Hi Can someone explain me how do they get the premium rate index and the BF method ultimate claims in their solutions? Thanks
For the premium rate index you need to start from 2011 and work backwards applying successive premium rate changes so you can work out the index that you need to multiply prior year premiums by to "on-level" them to 2011 rates. So for 2011, this is 1.0 as the 2011 premiums are already in 2011 rates. For 2010, you need to multiply by 1.05 to allow for the rate change from 2010 to 2011, so our index is now 1.0 x 1.05 = 1.05. There is no rate change from 2009 to 2010, so the index is 1.05 for 2009 as well. For 2008, we also have to allow for the 5% reduction in rates between 2008 and 2009, so our index is now 1.0 x 1.05 x 1.0 x 0.95 = 0.9975 and so on. Recall from your earlier studies (or Subject SP7), BF Ultimate = claims to date + (1-% developed) x prior estimate of ultimate so for 2011, BF ult = 1,960+(1-25%)*55%*4,640*12/10=4,257
