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mindyherzog
05-01-2011, 09:37 AM
On page 295 of the Werner text, it says:

The primary credibility factor is a function of the ballast value (B). The excess credibility factor is a function of both the ballast value (B) and the weighting value for excess losses (w).

Is this a typo? Should primary and excess actually be reversed?

mindyherzog
05-01-2011, 11:20 AM
Here are the equations for reference:

w = Ze/Zp

Zp=E/(E+B)

Where
Zp = primary credibility factor
Ze = excess credibility factor
E = Total Expected value of losses
w = weighting value
B = Ballast value

Clearly Zp is a function of both w and B, and Ze is only a function of w, right?

booyah81
05-01-2011, 02:22 PM
Not sure if my explanation is correct but I think the manual is correct as is. Zp is not a function of w and B. Zp is a function of E and B, thus the euqation Zp = E/(E+B) - w is nowhere in the picture. Likewise, Ze is not only a function of w, but of B and w since you could rearrange the equation w = Ze/Zp to be Ze = w x Zp, and since Zp is a function of B, Ze is a function of w and B.

Either way, I don't think it's important to know the equivalence of the two experience plan methods. If I were to guess, I'd say just know the NCCI method with w and ballast.

mindyherzog
05-01-2011, 03:41 PM
Hi Booyah, thanks for responding. Good point, Zp and Ze are a function of each other. Thus both are functions of both B and W. I think it would have been more clear if the book said it that way. The reason it came up is that it was a question on the All 10 practice test. You never know what they are going to put on the test.

Vorian Atreides
05-01-2011, 06:08 PM
I wouldn't get to caught up on some of these details. This topic is addressed more fully on Exam 8 (Advanced Ratemaking). The important thing to know for this Exam is how to use the various formulas and the formular relationships (IYKWIM) of the various components.

Zp is defined in a standard way (based on actual experience) and is "moderated" by the ballast (B). Since not all claims will be "excess", Ze is assigned to be a weight of Zp.

booyah81
05-03-2011, 12:43 PM
I owe Mindy an apology. I thought, "Sure they wouldn't make you know how the equivalence of the two methods," and then voila! - it's on the 2010 exam. Bah!! :redcard: