Walters "Differentials?"

[Gareth Keenan]

Walters is the author of "Catastrophe Ratemaking" in which the topic of differentials comes up. When you are revisng a "differential" is that a fancier way of saying "difference" or "relativity" or some term of that nature?

Cheers,

Gareth Keenan

[Vorian Atreides]

I believe the differential is similar to the term relativity; but with the difference being that a relativity implies a comparison to something (a base value of a rating factor or statewide average), but differential implied that there is a material difference between two values of a rating factor that are not compared directly with some base value.

Hope this makes some sense.

[Gareth Keenan]

Hi Vorian, What's up?!?

I believe I understand the point you are trying to make. I will restate using my own words with a little extrapolation of understanding, and you can tell me if I am correct.

As opposed to primary rate classification systems with rate relativities by things like class and territory, there is no base class fo Catastrophe rate making. So, whereas there are relativities from your class and territory that tie you back to the base class of regular insurance, none of those exist for CAT ratemaking

So, in practice, there are actually "differentials" essentially between each and every zip code, construction type, proximity to fire hydrant, etc...

So, it would also be fair to say that for roughly the same set of exposures, there are more "differentials" than relativities.

Is it something like that one who brings balance to the force?

Regards,

Gareth Keenan

[Vorian Atreides]

With the exception of the proximity to a fire hydrant (aka protection class), I think what you're saying is on track.

[Malcolm]

I haven't read this actual paper, but Walters has a very similar paper on part 9, and I assume that he's using "differentials" synonymously with "relativities"

IIRC, Walters uses a "base class" for catastrophe ratemaking, but it may be different than the "base class" for primary ratemaking.