Actuarial Outpost > CAS Estimating class relativities - Finger vs Mclenahan
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#1
04-26-2006, 11:41 PM
 Purple Princess Member CAS Join Date: Aug 2002 Location: Montreal Posts: 817
Estimating class relativities - Finger vs Mclenahan

Finger and Mclenahan are seriously messing with my mind.

I did 2004 #36 and got it wrong because I didnt divide the on-level earned premium by the current class relativity before calculating the loss ratios. So then I was like, I won't make that mistake again!!!

So I get to 2005 #49, and first I make the earned premium on-level by dividing by year's base rate and multiplying by 2005 base rate. Then, because I learned my lesson in 2004 #36, I divide the on-level earned premium by the current relativities. But according to the solution, this is wrong!!! I am soooooo confused.

I did a little research and it turns out that the solution to 2004 #36 is the method shown in Mclenahan (p. 119) and the solution to 2005 #49 is the method shown in Finger (p. 325-326). And since they don't tend to mention which article to use, there is no way for us to know which method to use.

So do you guys think that we could get credit for either method on the exam? I am assuming I could just state which author's method I was using. Right?
#2
04-27-2006, 12:20 AM
 2M Member Join Date: May 2004 Posts: 26,637

They should give you the same result.

Finger:

McClenahan:

Last edited by 2M; 04-27-2006 at 12:44 AM..
#3
04-27-2006, 06:35 AM
 hzhang Member Join Date: Jul 2003 Posts: 398

PP: I agree with you that Finger does not take current relativity into account, while McClenahan does when they are both calculating the indicated relativities. However, from the layout of the problems, you could tell immediately the problem is from Finger's exhibit or McClenahan's one. That's how I approach that type of problems.
#4
04-27-2006, 12:29 PM
 Purple Princess Member CAS Join Date: Aug 2002 Location: Montreal Posts: 817

Quote:
 Originally Posted by hzhang PP: I agree with you that Finger does not take current relativity into account, while McClenahan does when they are both calculating the indicated relativities. However, from the layout of the problems, you could tell immediately the problem is from Finger's exhibit or McClenahan's one. That's how I approach that type of problems.
The layout of 2005 #49 closely resembles a Mclenahan exhibit because the first column is current relativities, and yet the answer uses Finger's method.
#5
04-27-2006, 12:36 PM
 pcact Member CAS AAA Join Date: Sep 2004 Location: nj Posts: 225

Notice that:

EP @ 2005 is not used to calculate indicated relativities.

The base rates of A and B are different and independent of the current relativities. (Can this happen?)
#6
04-27-2006, 12:37 PM
 hzhang Member Join Date: Jul 2003 Posts: 398

Quote:
 Originally Posted by Purple Princess The layout of 2005 #49 closely resembles a Mclenahan exhibit because the first column is current relativities, and yet the answer uses Finger's method.
The first column of current relativities is to "mislead" you. Look at the rest columns. Finger's exhibit has experience period and credibility information, while Mclenahan's one does not.
#7
04-27-2006, 12:41 PM
 pcact Member CAS AAA Join Date: Sep 2004 Location: nj Posts: 225

Quote:
 Originally Posted by Purple Princess The layout of 2005 #49 closely resembles a Mclenahan exhibit because the first column is current relativities, and yet the answer uses Finger's method.
You can use McClenahan's method but it produces a different answer than Finger's.
#8
04-27-2006, 12:42 PM
 hzhang Member Join Date: Jul 2003 Posts: 398

Quote:
 Originally Posted by pcact Notice that: EP @ 2005 is not used to calculate indicated relativities.
You're right. When we are asked to calculated indicated relativities, we do NOT need to calculate off-balnce which is based on EP @ 2005. However, if we're asked to calculate indicated base rate, we need that information.

Quote:
 Originally Posted by pcact The base rates of A and B are different and independent of the current relativities. (Can this happen?)
It shows in this problem that they are independent and not consistent.
#9
04-27-2006, 12:46 PM
 hzhang Member Join Date: Jul 2003 Posts: 398

Quote:
 Originally Posted by pcact You can use McClenahan's method but it produces a different answer than Finger's.
How do you do to incorporate experience information and credibility in McClenahan's method? -- Is that out of scope of the syllabus? We're NOT talking about off-balance.
#10
04-27-2006, 12:50 PM
 pcact Member CAS AAA Join Date: Sep 2004 Location: nj Posts: 225

Quote:
 Originally Posted by hzhang It shows in this problem that they are independent and not consistent.
In Finger's paper p.322, current relativity of B = current base rate of B / current base rate of A.

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