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Examinator
05-05-2005, 01:12 PM
This is a Tiller problem. I hate Tiller problems. Nonetheless I must understand Tiller problems.

Each time I've worked this problem, it's stumped me and if faced with it tomorrow, it'll get me again. I can brow-beat the solution into my head, but there are pieces of it (this problem specifically, not the concept) that make no sense to me.

You're given that "Premises/operations premium is \$240,000." This problem messes with three years of experience.

1) You're to simply assume that the premium is \$240,000 for each year? I realize this is the only way to complete this problem, but it seems quite vague.

2) Also, you need to apply a detrend factor to each year's premium (before converting it to losses via the ELR). How do you know you NEED to use this detrend factor? From what I understand, you use it if given current basic limits premium. The above makes no reference (nor anywhere else in the problem) to the P/O premium being basic (total, or otherwise) limits premium. Also, which goes back to my first question, 1), if you're given disctinct detrend factors by year, wouldn't you think that it's not safe to assume non-distinct premium dollars for each year?

jk
05-05-2005, 05:08 PM
1) You're to simply assume that the premium is \$240,000 for each year? I realize this is the only way to complete this problem, but it seems quite vague.Yes! This stands out in my mind because recently one of the underwriters asked me at work, "Can you modify this stupid ISO model so that it allows for varying exposure?"

2) Also, you need to apply a detrend factor to each year's premium (before converting it to losses via the ELR). How do you know you NEED to use this detrend factor? From what I understand, you use it if given current basic limits premium. The above makes no reference (nor anywhere else in the problem) to the P/O premium being basic (total, or otherwise) limits premium.You should always detrend the premium. You should use BL premium because the model will cap losses at BL; if they give premium but don't say, I'd just assume it was BL.