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Rating model

J

JeanOlivier

Member
In the April 2009 paper question 2, there is mention of a rating model. What is a rating model? Is it the burning cost/loss curve/ILF type of model or is it a software rating model?

Could someone please provide some insight?Thanks.
 
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http://www.actuaries.org.uk/__data/assets/pdf_file/0016/133711/Cross.pdf is an excellent starting point to answer this question.
Here is my take for what it's worth:
A rating model is a means of calculating a premium in this case for a commercial EL policy. The premium is a technical price plus adjustment for the market.

It could be partly or wholly a spreadsheet or some other model but needs to provide a premium. The model could or should be a function of some or all of: past claims experience and associated uncertainty and credibility of both the policy and all similar types of policy, expected future claims experience, additional cost of reinsurance, expenses of servicing the policy and brokerage/commission, investment return, required expected return ie profit loading, capital requirements and required rate of return on capital, future assumptions on all of these, competition, book rate where applicable, previous renewal premium if applicable..., rating factors for EL such as trade and mix of clerical and other employees, locations of employees, start date and length of policy typically one year and as mentioned earlier possibly the book rate which will be function of EL rating factors also.

As the question refers to EL premiums and to show off: the type of policy written, whether policies are claims made or claims occurring, whether retrospective claims, latent claims and IBNR are included in historic data
how the claims experience and book rate are adjusted for this will affect the risk premium calculation also.

The paper gives one excellent way of adjusting the past claims experience - separating large claims, event claims and the remainder (attritional claims).

Note as I did not take the exam, my opinion may not be the one required.
 
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