Page 237 - ic92 actuarial

Foundations of Casualty Actuarial Science

If there is a huge loss of data , it might be possible to
estimate each of the separate rates , by individual territory
and class.

Usually every combination of data is not credible . Every
combination of data for territory or class or the entire
state may not be yield 100% credible data. Most insurer
use for each territory a similar class plan to estimate
territorial relativities by state. The usual assumption is
that the relative costs for each territory is consistent for
all the classes and vice versa .

7. How can we estimate class relativity through
loss ratio approach?

Ans : Estimation of class relativity through loss ratio approach
involves four steps:
(i) Adjusting premiums to current rates

(ii) Estimating preliminary adjustments to territorial
relativities

(iii) Making an adjustment for credibility and

(iv) Balancing the rate change for the credibility
adjustment

Sashi Publications - www.sashipublications.com 237

Copyright@ The Insurance Times. 09883398055 / 09883380339