Pro rata adjsutment for tort reform

[zhbuyi]

I am not sure if it could be tested. In chap 8, Auto BI example, Tort reform adjustment factor is 0.67. 2004 is a partial year, I can not understand how it is adjusted to become 0.75.

Thanks.

[Vorian Atreides]

Tort reform enacted on 10/1/04.

So, for that year, 1/4 of the losses are at the new rate level (that is, factor of 1.00); 3/4 of the losses need the 0.67 (or 2/3) adjustment.

So, the average adjustment needed = 2/3 * 3/4 + 1 * 1/4 = 3/4 = 0.75.