Exam5: Incorporation Of Fixed Expenses - Werner

[Ruby]

I’ve the following two problems with the Werner reading. I would deeply appreciate any help:

i) Page 237, Item (8):

Trend Period = 3.00

Can anyone tell me from where the trend period of 3 yrs came from? and how?


ii) Page 240, Item (7):

Again how the author has calculated the trend periods for Yrs1,2 and 3?


Many thanks for your time.

[Avi]

I’ve the following two problems with the Werner reading. I would deeply appreciate any help:

i) Page 237, Item (8):

Trend Period = 3.00

Can anyone tell me from where the trend period of 3 yrs came from? and how?

I admit that I did not read this paper, but a cursory skimming implies that it is because Werner is using 3-yr averages. (Page 215)

ii) Page 240, Item (7):

Again how the author has calculated the trend periods for Yrs1,2 and 3?


From skimming Appendix A, it appears that the author is assuming all costs are incurred at policy inception. Year 3 is the last year for which we have complete data. Year 4 is the year we are in, and year 5 is what is being priced. Midpoint of experience period year 3 until midpoint of exposure period year 5 (assuming all expenses incurred day 1) is 7/1/X3 - 7/1/X5 or 2 years. Add one year to the trend for each year you go back.

Hope that helps.

Good Luck!