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Substituting for L and G in the equation of R , we get

R = EP [1+(F/P)]
E(1-V-Q)

R= P+F
1-V-Q

This is the formula for the indicated rate under the pure
premium method. The equivalence of the two methods
id therefore demonstrated.

Q7. Differentiate between pure premium and loss
ratio method.

Ans. There are several differences between pure premium
method and loss ratio method, in spite of producing similar
results when applied. They are as follows :
(i) Pure premium method is based on exposure whereas
loss ratio method is based on premium.

(ii) Pure premium method does not require existing rates
whereas loss ratio method requires existing rates.

(iii) Pure premium method does not uses on-level
premium whereas loss ratio method uses on-level
premium.

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