Ratemaking 2007 #36

[david849]

This is a two step premium trend question. The method that I use is slightly different than the sample answer, but much simpler: use 2005 average WP (the most recent exp period) and trend it to 2007. So 3998 * 1.03^2 = 4241.5, use this as the trended ave premium for all years (03~05). Then multiply this number to the respective exposure units to get the total premium. Why do we need to do the whole step 1 factor calculation?

In fact, isn't the step 1 trend factor calculation introduced in W&M redundant? Because factor = latest ave WP / hist ave EP, then multiply to hist ave EP, aren't you always going to get back to the latest average WP?

[FourKicks]

agree with you 100% that the step 1 factor seems superfluous. one of the videos in TIA works this problem exactly as you described above.

however, it's worth noting that in recent exam questions related to this topic, they've explicitly asked for the step 1 and step 2 trend factors, so there's a good chance you won't be able to use this shortcut on an exam.

[Colymbosathon ecplecticos]

however, it's worth noting that in recent exam questions related to this topic, they've explicitly asked for the step 1 and step 2 trend factors

Would you mind citing these?

[Vorian Atreides]

Recent Exam problems have not explicitly asked for the trend factors for step 1/step 2; but the sample solutions are pretty clear that these values are expected.

Given the general direction to SHOW ALL WORK and the fact that the "two-step trend method" develops two trend factors, it behooves one to show those two factors in order to get full credit (or a larger portion of partial credit).

[david849]

Thanks. When an exam problem does not explicitly ask for step 1 factor, I can't imagine CAS will take points off for using mathematical shortcuts. If that's the case then what kind of skills are they testing exactly?

[Vorian Atreides]

Thanks. When an exam problem does not explicitly ask for step 1 factor, I can't imagine CAS will take points off for using mathematical shortcuts. If that's the case then what kind of skills are they testing exactly?
Be careful of which shortcuts are being used. I do see CAS taking points off of this type of problem since the step 1 trend factor is integral to the overall process. Showing Latest Point Avg WP times CY exposures and trending this with the step 2 trend doesn't demonstrate that you understand the two-step trending method.

And it's not less complex (or more time efficient) than showing the step one trend factor explicitly. If anything, I'll bet you'll lose points if you don't show the step 1 trend factor. Why give up easy points?