• We are pleased to announce that the winner of our Feedback Prize Draw for the Winter 2024-25 session and winning £150 of gift vouchers is Zhao Liang Tay. Congratulations to Zhao Liang. If you fancy winning £150 worth of gift vouchers (from a major UK store) for the Summer 2025 exam sitting for just a few minutes of your time throughout the session, please see our website at https://www.acted.co.uk/further-info.html?pat=feedback#feedback-prize for more information on how you can make sure your name is included in the draw at the end of the session.
  • Please be advised that the SP1, SP5 and SP7 X1 deadline is the 14th July and not the 17th June as first stated. Please accept out apologies for any confusion caused.

SP1 Q7 sept 07 calculation of loss ratio

A

Anjulee Greenbank

Member
Hi, can you help me understand the calculation done on sept 07 q7ii where they have derived the 2007 loss ratio based on the 2002-2006 data given (which is written premiums and incurred losses.)

we are told there was a rate increase in 2004 at 10% and 1% claims increase over the period.

The answer shows inflated index and premium index - I can’t figure out how these are calculated.

thanks
Anj
 
Hi, can you help me understand the calculation done on sept 07 q7ii where they have derived the 2007 loss ratio based on the 2002-2006 data given (which is written premiums and incurred losses.)

we are told there was a rate increase in 2004 at 10% and 1% claims increase over the period.

The answer shows inflated index and premium index - I can’t figure out how these are calculated.

thanks
Anj
Hi Anj

The inflation index is calculated as 1.01^t , so that the older claims are increased by an extra 1% each year.

The premium index is calculated in a similar way. However, for most years the premium increase was zero. In fact there was only one premium increase of 10% in 2004. So all the years prior to this have their premiums increased by 10% to bring them into line with the current pricing.

I hope this helps.

Best wishes

Mark
 
Hi Anj

The inflation index is calculated as 1.01^t , so that the older claims are increased by an extra 1% each year.

The premium index is calculated in a similar way. However, for most years the premium increase was zero. In fact there was only one premium increase of 10% in 2004. So all the years prior to this have their premiums increased by 10% to bring them into line with the current pricing.

I hope this helps.

Best wishes

Mark

thanks so much, that all makes perfect sense apart from one thing.

why do all the years prior to 2004 have their premiums increased if the rate increase wasn’t until 2004? I think I’m missing something on this point.

Thanks so much for your help.
 
thanks so much, that all makes perfect sense apart from one thing.

why do all the years prior to 2004 have their premiums increased if the rate increase wasn’t until 2004? I think I’m missing something on this point.

Thanks so much for your help.
Hi Anj

We want to do all our calculations in a consistent way. That means looking at the claims in today's money terms and the premiums at today's premium rates too.

Premium rates haven't changed since 2004, so everything from then onwards already has premiums at the current rate. So it is the premiums from before 2004 that need to be increased by 10%, because they were written on the older lower rates.

Best wishes

Mark
 
Hi Anj

We want to do all our calculations in a consistent way. That means looking at the claims in today's money terms and the premiums at today's premium rates too.

Premium rates haven't changed since 2004, so everything from then onwards already has premiums at the current rate. So it is the premiums from before 2004 that need to be increased by 10%, because they were written on the older lower rates.

Best wishes

Mark

Ah, I’m with it now, thank you.
Thanks so much!
 
Back
Top