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Looking first at the target loss ratio :
T=1-V-Q
1+G
Where
V = premium-related expense factor
Q = profit and contingencies factor
G = ratio of non-premium-related expenses to losses
And, then the experience loss ratio :
W= L .
ER0
Where
L = experience losses
E = experience earned exposure
R = current rate
0
Using all the above equations we get,
A= L / ER0
(1 - V- Q) / (1 + G)
= L(1 + G)
ER0 (1 - V - Q)
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