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#1
04-22-2012, 01:24 PM
 maddie CAS Join Date: Oct 2011 Posts: 4
Asset Share TIA New Problems 6

In this problem, they adjust the avg losses for change in relativities, but I just can't figure out exactly the mechanic and thinking behind it all, even with the calculation shown for the second PY....
Can someone using TIA help me out with this?
#2
04-22-2012, 03:33 PM
 Dedicated111 Member CAS Join Date: Feb 2008 Studying for Exam 7 Favorite beer: Fat Tire Posts: 825

Well you have the first year Loss of 500 (which is provided). You have to trend this while also applying the "losses decrease 1% per annum as policy matures". So that gives you 500*1.1*.99. Then we have to adjusted by the change in loss ratio relativities. So if the relativity for year 1 is .96 and year 2 is .93. The change from year 1 to year 2 is .93/.99 (similar to our rating problems in W&M).

Now year 2 = 500*1.1*.99*.93/.96
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#3
04-22-2012, 03:36 PM
 Dedicated111 Member CAS Join Date: Feb 2008 Studying for Exam 7 Favorite beer: Fat Tire Posts: 825

I'm not sure exactly what you were getting stuck on with this problem. But if you don't understand what .93/.96 means, then, umm..you may need to go back to some of the fundamentals of the Loss Ratio methods in the various W&M chapters. Hope my explanation helped.
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#4
04-22-2012, 04:21 PM
 Dedicated111 Member CAS Join Date: Feb 2008 Studying for Exam 7 Favorite beer: Fat Tire Posts: 825

I was actually going back through a couple videos and rewatching some of them. You can find this problem worked out by Ken in the Competitive Strategy video (section G of the ratemaking videos)
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#5
04-22-2012, 05:01 PM
 maddie CAS Join Date: Oct 2011 Posts: 4

Thanks!
I got confused with the 0.99, thinking it had something to do with the new business relativities, forgetting about that 1% decrease in loss costs. Which leads me to another question..
Usually, I would've divided by 1.01 instead of multiplying by 0.99. The wording of this problem is a little different though (improve by vs decrease), but then I noticed Ken used the 1.01 in the video. Do you think we would get away with both on the exam?
#6
04-22-2012, 07:07 PM
 Dedicated111 Member CAS Join Date: Feb 2008 Studying for Exam 7 Favorite beer: Fat Tire Posts: 825

You would want to divide. You get lucky here because 1/1.01 = .990099
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#7
04-25-2012, 10:53 PM
 Vypa Member CAS Join Date: Mar 2012 Posts: 30

Quote:
 Originally Posted by Dedicated111 You would want to divide. You get lucky here because 1/1.01 = .990099
I believe there is some ambiguity here as Feldblum multiplies by (1 - loss cost improvement) in the Discount example in the paper. Elsewhere he divides by (1 + loss cost improvement). It's not consistent.
#8
04-30-2012, 10:23 AM
 intelmic Member CAS Join Date: May 2006 Location: Montréal, Québec, Canada Favorite beer: Une grosse labatt 50 Posts: 975

Quote:
 Originally Posted by Vypa I believe there is some ambiguity here as Feldblum multiplies by (1 - loss cost improvement) in the Discount example in the paper. Elsewhere he divides by (1 + loss cost improvement). It's not consistent.
+1 on inconsistency.

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