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Rice
05-05-2005, 10:09 PM
I can't for the life of me figure out Jones' 2-step (and I sure ain't dancing) trending procedure.

Experience period: 1/1/01 - 12/31/03
Planned effective date: 7/1/05
Rates are reviewed annually
6-month policies
Trend applies to CAY 2002 EP@CRL

Calculate Step 1 and Step 2 beginning and ending dates based on a) WP b) EP.

I guess I'm not undestanding how they come up with avg written / avg earned dates. I thought I had a handle on it before I read this paper, but now I have no clue.

Answer:
WP: Step 1: 4/1/02 - 7/1/03 Step 2: 7/1/03 - 1/1/06
EP: Step 1: 7/1/02 - 7/1/03 Step 2: 7/1/03 - 4/1/06

Rice
05-05-2005, 10:18 PM
What is the exposure period? Is it 6 months because of the policy duration, 12 months because of how long the rates are in effect, or something else?

isaac218
05-05-2005, 11:34 PM
I was a bit confused by this one myself. I thought that since they were six month policies you would take the middle of the last six months of experience and use that as you latest trend point. Instead they are using the middle of the last year of experience as their latest trend point. If they ask this question what I plan to do is say "Assuming that the last ____ represents the last period, ____ would be the latest trend point." To be safe, always use the last year of data. I have only seen two problems like this and on both, the latest trend point was the middle of the last year of experience.

I just realized that I didn't answer the easy parts. Average written date on a six-month policy is 3 months (policy length / 2) before the midpoint of the experience period. Average written date in the future period is just the middle date of the period rates will be in effect, usually 6 months after effective date.

Earned is easier, you take the middle of the experience period for start date. You take effective date + 1/2 policy lenghth + 1/2 effective writing period to get the ending date.

To better understand avg written date draw a rectangle representing the experience period. Now draw a diagonal line from the avg written date and it should divide the area of the rectangle in half.

In all of these situations the latest trend point would stay the same.

HTH,
Isaac