Page 238 - ic92 actuarial

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The first step is to adjust historically earned premiums
to current rates because if we use un adjusted premium,
we would develop relativity changes to the historical
relativities but not to the current relativities.

But when we have more than one set of relativities in
our historical experience, we find it difficult to determine
the appropriate average historical relativity. So the easiest
solution is to estimate earned premiums at current rates.

We may not always have a complete record of exposures
for all the different rating variables, so we have to assume
the past rates for abase class in each territory. The
historical earned premiums are then adjusted by the
change in the rate for the base class.

This adjustment may have some error,. if non territorial
relativities have changed in the past and each territory
does not have the same percentage of exposures for
each rating variable.

The second step is the preliminary adjustment to the

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