2009 #37

[victorandjenny]

I have a problem to understand the answer, specifically column (8): how to get the total of 0.84?

Terri Expos. current terri rel
1 4000 0.6
2 16000 1
3 3750 0.52

So the total reletivity should be (4000*0.6+16000*1+3750*0.52)/(4000+16000+3750)=0.857


If we should also consider avg rel. for other factors, which doesn't make much sense for me,

Terri Expos. current terri rel Avg. Rel. for other factors,
1 4000 0.6 1.3
2 16000 1 1.05
3 3750 0.52 1.2

The total relativity will be like this (4000*0.6*1.3+16000*1*1.05+3750*0.52*1.2)/(4000+16000+3750)=0.937


What's wrong with my logic or calculation, or the answer of this question? Thanks.

[Vorian Atreides]

Note that I reference the column headings of the Exam (the number in parentheses at the top).

Column 1 = adjusted exposures (Recognizes the impact of the relativity adjustment . . . using the average factor of all other rating factors recognizes their impact on the indicated rate levels for this rating factor. If you're unclear on the motivation on this, I'd suggest re-reading that section of W&M very carefully.)

Column 3 = pure premium; this is the basis of determining the relativities (not an average factor)

Column 4 = relativities of column 3 to the total pure premium.

Column 6 = credibility adjusted indicated relativity (see the formula at the top)

Column 7 (which is what I'm assuming you're referencing) = column 6 number divided by the indicated relativity for the base territory.

Note that 0.816 = 74.40 (pure premium for terr 2) / 91.19 (average pure premium of all territories).

[victorandjenny]

Thank you very much for your answer. In fact, that's not where I have question.
Column (7), (8) and (9) are like the following, (which is from TIA mannual Chapter 9 page 23).

(7)indi. rel to base (8)cur. Rel (9) adj cur. rel.
1.0856 0.600 0.7143
1.0000 1.000 1.1905
1.0753 0.520 0.6190
Total 0.840

My quesiton is how to get the total of 0.840 in column (8). Thanks.


Note that I reference the column headings of the Exam (the number in parentheses at the top).

Column 1 = adjusted exposures (Recognizes the impact of the relativity adjustment . . . using the average factor of all other rating factors recognizes their impact on the indicated rate levels for this rating factor. If you're unclear on the motivation on this, I'd suggest re-reading that section of W&M very carefully.)

Column 3 = pure premium; this is the basis of determining the relativities (not an average factor)

Column 4 = relativities of column 3 to the total pure premium.

Column 6 = credibility adjusted indicated relativity (see the formula at the top)

Column 7 (which is what I'm assuming you're referencing) = column 6 number divided by the indicated relativity for the base territory.

Note that 0.816 = 74.40 (pure premium for terr 2) / 91.19 (average pure premium of all territories).

[Vorian Atreides]

Thank you very much for your answer. In fact, that's not where I have question.
Column (7), (8) and (9) are like the following, (which is from TIA mannual Chapter 9 page 23).


OK . . . it helps when you put info like this in the OP. Not everyone has TIA and will think that is what you're referencing.

The total relativity will be like this (4000*0.6*1.3+16000*1*1.05+3750*0.52*1.2)/(4000*1.3+16000*1.05+3750*1.2)=0.937 0.84


I've added the missing pieces to your previous post. You need to adjust the exposures for the average rate factor of all other rating elements. This adjusted exposure amount is what you should use for the rest of the procedure.

[victorandjenny]

Thank you very very much. This make a lot of sense to me. Have a nice day!


OK . . . it helps when you put info like this in the OP. Not everyone has TIA and will think that is what you're referencing.



I've added the missing pieces to your previous post. You need to adjust the exposures for the average rate factor of all other rating elements. This adjusted exposure amount is what you should use for the rest of the procedure.

[cutenephew]

Note that I reference the column headings of the Exam (the number in parentheses at the top).

Column 1 = adjusted exposures (Recognizes the impact of the relativity adjustment . . . using the average factor of all other rating factors recognizes their impact on the indicated rate levels for this rating factor. If you're unclear on the motivation on this, I'd suggest re-reading that section of W&M very carefully.)

Column 3 = pure premium; this is the basis of determining the relativities (not an average factor)

Column 4 = relativities of column 3 to the total pure premium.

Column 6 = credibility adjusted indicated relativity (see the formula at the top)

Column 7 (which is what I'm assuming you're referencing) = column 6 number divided by the indicated relativity for the base territory.

Note that 0.816 = 74.40 (pure premium for terr 2) / 91.19 (average pure premium of all territories).


Is there a reason why there is not a step of balanced credibility PP relativity? I have seen few problems so far, some have that step and some don't, is it because some EP is not giving? Or something that I totally miss while reading the section. Thanks!

[Vorian Atreides]

It has to deal with past syllabus material. In the previous version ("Finger" is the reference), the off-balance was part of the calculations, so it inevitably becomes part of the expected solution. It's been noted many times that when the concern is just the relativities between classes/territories, the off-balance is irrelevant.

W&M doesn't include the off-balance in the determination of the relativities (it's part of the discussion of the implementation of the proposed rating plan, IIRC).

[cutenephew]

It has to deal with past syllabus material. In the previous version ("Finger" is the reference), the off-balance was part of the calculations, so it inevitably becomes part of the expected solution. It's been noted many times that when the concern is just the relativities between classes/territories, the off-balance is irrelevant.

W&M doesn't include the off-balance in the determination of the relativities (it's part of the discussion of the implementation of the proposed rating plan, IIRC).

If I am getting this right, I should be safe to not include the off-balance factor in my calculation?.......Modlin did include relativity change with off-balance as an extra step after getting the credibility weighted indicated relativity, so it was just an extra step that's not relevant for this chapter.

Thanks a lot!

[Vorian Atreides]

Agree . . . just note that if the question asks for rates and not just relativities, you'll need that off-set.

[cutenephew]

Agree . . . just note that if the question asks for rates and not just relativities, you'll need that off-set.

Great! Thanks a lot!!!