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Old 05-10-2018, 11:34 AM
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mathmajor mathmajor is offline
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Default Question on rating (ACA)

What credibility and rate development approach do you use?

Our model which I've been reviewing splits our experience into cells (Rating Area x Metal Level) and builds a "manual" off the paid experience but adjusted, and takes a weighted avg between the two.

Then sums up the individual cred adj cells to get an average rate.

1) Is this in line with the single risk pool development standards? Would a DOI balk?

2) Is this actuarially sound?
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Old 05-10-2018, 12:29 PM
cincinnatikid cincinnatikid is offline
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I think the more typical thing to do is use area and plan benefit factors for that purpose, i.e., normalize the whole pool for age, area, benefits then project forward as a single unit and apply the new factors.

I'm not sure there's anything that fundamentally isn't sound about your approach, but on the surface it seems like there's more risk of double-counting or blending away some of your factors with a weighted credibility approach.
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Old 05-10-2018, 12:38 PM
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I disagree with the approach because I don't understand the purpose of establishing all these micro-manuals, credibility blending, only to re-aggregate. Doesn't that degrade the credibility of the experience? Does that improve credibility overall or present a bias?

And worse, how to represent on the URRT.

I'm trying to steer into a method like you describe (adjusting for the projection on aggregate). Our method feels like a way of controlling for fluctuation in the individual cells but it seems unnecessary in the aggregate.
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Old 05-10-2018, 12:56 PM
cincinnatikid cincinnatikid is offline
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Quote:
Originally Posted by mathmajor View Post
I disagree with the approach because I don't understand the purpose of establishing all these micro-manuals, credibility blending, only to re-aggregate. Doesn't that degrade the credibility of the experience? Does that improve credibility overall or present a bias?

And worse, how to represent on the URRT.

I'm trying to steer into a method like you describe (adjusting for the projection on aggregate). Our method feels like a way of controlling for fluctuation in the individual cells but it seems unnecessary in the aggregate.
Agreed. I think the best case scenario is that everything is correctly weighted and it all washes out and is for naught.

Maybe a remnant of when the 'manual' population was something different (non-ACA or adjusted group experience) that just got carried forward because nobody questioned it?

Good luck! Hope your URRT isn't due in the next week or two if you're rebuilding everything from scratch.
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