Page 243 - ic92 actuarial

Foundations of Casualty Actuarial Science

Generally a matrix of exposures is then used to neutralize
the territorial approaches.

Sometimes adjustments are made by class where again
the result varies because of the approximation used to
calculate premiums at current rates. Here to a matrix
of current premiums can be used.

An iterative approach produces more accurate
relativities, where balanced adjustments are based on
historical losses and the current relativities, as reflected
in the base exposures. If we use the revised relativities
to adjust our base exposures, we can produce a new set
of indicated adjustments.

If we continue this process, normally we converge at a
more accurate set of relativities. However an iterative
procedure produces different relativities than a one step
procedure when some of the territories or classes have
a disproportionate share.

The base exposures for the class analysis are

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