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#11
02-13-2018, 03:27 PM
 cincinnatikid Member SOA Join Date: Jul 2005 Posts: 2,188

Quote:
 Originally Posted by zzhang Yes, This is only one factor of the model. The final result should compound the other factors. I am working on my own spreadsheet and not sure how to use effectiveness to project earned prem in the next year. So I was hoping someone can help me find the proper formula.
Effectiveness shouldn't change unless you are changing your mix of groups (which creates all sorts of problems). I would use the following approach in a very simplified projection with a static population (usually currently enrolled population):

#12
02-13-2018, 03:35 PM
 zzhang SOA Join Date: Jul 2016 College: University of Nebraska-Lincoln Posts: 6

Quote:
 Originally Posted by cincinnatikid Effectiveness shouldn't change unless you are changing your mix of groups (which creates all sorts of problems). I would use the following approach in a very simplified projection with a static population (usually currently enrolled population): 2018 Premium = 2017 Premium * (1+[(2017 increase)*(1-Effectiveness)+(2018 increase)*(Effectiveness)])
Just want to be clear, if the mix of groups stays the same, but the effective dates of rate change are different, then the effectiveness is also changing, right?

Thanks for your formula. Is it an approximate approach? I know my formula is more complicated but does my formula also make sense? (Just want to see if I fully understand the definition of effectiveness)

Also, I sent you a Private Message.
#13
02-13-2018, 03:48 PM
 cincinnatikid Member SOA Join Date: Jul 2005 Posts: 2,188

Quote:
 Originally Posted by zzhang Just want to be clear, if the mix of groups stays the same, but the effective dates of rate change are different, then the effectiveness is also changing, right? Thanks for your formula. Is it an approximate approach? I know my formula is more complicated but does my formula also make sense? (Just want to see if I fully understand the definition of effectiveness) Also, I sent you a Private Message.
Correct. I was thinking of an annual rate change that occurs at the same time every year, but if you have multiple increases (ex. quarterly trend) or increases that occur at different times of the year, you would have different effectiveness factors.
#14
02-13-2018, 04:11 PM
 JMO Carol Marler Non-Actuary Join Date: Sep 2001 Location: Back home again in Indiana Studying for Nothing actuarial. Posts: 37,660

Quote:
 Originally Posted by zzhang Hi, I think you are right, but another question comes up: Here is the situation, rate increased 5% in 2017, with an effectiveness of 0.75; Proposed rate increases 7% with assume effectiveness of 0.6. So how to project the earned premium in 2018 (not consider other factors) P(2018)=P(2017)/(1+5%*0.75)*(1+5%)*(1+7%*0.6) i.e. Step 1: P(2017) / (1+5%*0.75) :Earned premium in 2017 if no rate changed; Step 2: *1.05 : Rate level in 2018 after 5% increase in 2017; Step 3: (1+7%*0.6) : Actual Earned Prem in 2018 after applying effectiveness. or something else? Thanks
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 Tags effective rate factor, effectiveness, ineffective, premium trend