View Full Version : TIA 5A PE4 #5

05-02-2011, 06:38 PM
Given the following information:

CY08 EEx = 1000
CY08 WEx = 1100
CY08 CLEP = 487,500
CY08 CLWP = 550,000
CY09 EEx = 1200
CY09 WEx = 1300
CY09 CLEP = 615,000
CY09 CLWP = 682,500

All policies are annual
Proposed effective date is January 1, 2011
Rates are expected to be in effect for one year
Projected premium trend is 5%

Calculate the calendar year 2008 earned premium at prospective levels using two-step trending.

The solution uses a prospective trend period from 7/1/09 ~ 7/1/11. Shouldn't it be 7/1/09 ~ 1/1/12? Ie. Avg Earn Date to Avg Earn Date.

05-02-2011, 07:17 PM
I thought the same thing on this problem. The answer key says the 2nd date is the average written date, but wouldn't that mean the dates should be from 1/1/09 ~ 7/1/11? Is this a past exam problem which we can look up?

Vorian Atreides
05-02-2011, 07:21 PM
In Step 2, the actuary selects the amount the average premium is expected to change annually from the
current level (as of November 15, 2011 in this example) to the level in the projected period. As in the
one-step trending approach, the “trend to” date in this projection is the average written date during the
period the proposed rates are expected to be in effect

Reading the section on one-step trending, W&M determines the trending from Avg Written Date to Avg Written Date (even though this is applied to CL-EP). It's just that some companies do this from Avg Earned Date to Avg Earned Date.

Note that by doing the two-step trend this way, more of the trend period is in the historical part rather than the forecast part. This is done in Appendix A.