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ST 3 A2006 Q4 (i)

R

r_v.s

Member
Would you pls explain the premium index in the solution?? How have the reate changes been used?
 
The premium index allows for the historical premium rate changes between the historical underwriting years when the original premiums were written and the future year that you are estimating the loss ratio for.

It is calculated using the rate changes provided.

So to adjust the premiums written in 2001 to be on 2006 terms you need to increase by 50%, followed by an increase of 10%, followed by an increase of 5%, then no change and then allow for a 5% fall between 2005 and 2006.

The index for 2001 is therefore 1.5*1.1*1.05*1.0*0.95=1.65
 
From what I understand about part (i),
We are concluding that a 96.5% loss ratio can be expected for the 2006 underwriting year.

Thus, we are simply calculating a weighted average of the past years, after all adjustments.

Kindly guide whether my understanding is correct.
 
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