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Risk vs office premium - sorting this once and for all!

T

thistleandspice

Member
It has appeared to me that many exam questions over the years seem to include different things in both the risk and office premium than one would expect.

This may be due to changes in syllabus over the years - but could someone confirm what's included for 2012?

My understanding is:

Risk premium =
theoretical rate coming out of GLM/exposure rating/experience rating
+
adjustments to data and allowance for trends (eg for large losses/cats, unusually heavy/light experience, changes in risk, cover, terms & conditions, changes in mix of business, future inflation, legislative/judicial changes etc)

Office premium =
risk premium
+
loadings (TCPRICE)

Actual premium =
office premium
+
all the other external things to be taken into account (ie NCD, underwriting cycle, competitors, inertia pricing, distribution channel, cross subsidies etc)

As an example, Q6 of September 2003 seems to mix up what's included in the risk/office premium - and even allows for competitive issues in the office premium (ie insurance cycle, Q6 iii)b))

I'd like to understand the differences once and for all! Thank you! :D
 
You're right, it's changed over the years and is still a bit inconsistent between the various parts of Core Reading.

But your understanding is pretty much there. I would just shift NCD into the OP stage, so that:
RP=theoretical charge to cover just claims
OP=theoretical charge to cover everything else
AP=actual charge after adjustments for competition etc.

Note the Glossary definitions too - also of Product Costing, Product Pricing etc.

If in doubt, state what you assume is meant by a particular definition, and you should be ok.
 
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