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Foundations of Casualty Actuarial Science

Parallelogram method may not produce a reasonable
approximation of on- level earned premium.

Q3. What is the goal of manual rate making
process?

Ans. The goal of manual ratemaking process is to determine
rates that can provide sufficient funds to pay expected
losses and expenses, maintain an adequate margin for
adverse deviation, and produce a reasonable return on
any funds provided by investors, when applied to
underwriting of risk exposures.

Additionally, the manual rates are generally subjected
to regulatory review and, which tries to maintain a fair,
adequate, sufficient and in discriminatory rating.

Internally, they are also reviewed for the competitiveness
of the rate levels in the market place. While the actuary
may be directly involved in both internal and external
discussions, his primary responsibility to recommend
rates that can be reasonably expected to be adequate
over the period in which they are used.

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