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CH 17 - UW cycle (page 21)

K

kiki

Very Active Member
"Rate indices often fail to remove the underlying trends in the claims experience fully, leaving a residual loss ratio trend for the reserving actuary to explain."
  • premium rate = premium / exposure ;
  • as premium charged intended to cover : claim + profit margin + expenses ect.
  • change of rate indices may due to increase in claim experience and reduce the profit margin ;
  • therefore that is why the text suggested rate indices fail to remove the underlying trends in the claim experience fully , as may offset by other items in the premium, therefore lead to difference between LR vs prem change
  • is my understanding correct ? thank you very much :)
 
Hi

The adjusted loss ratio is claims/adjusted premiums. After computing the adjusted loss ratio, adjusted for premium rate changes, the loss ratio you will get will often not be the expected loss ratio. This means that you still need to do some further claims analysis to explain the residual loss ratio trend.
 
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