My question stems from 11/2013 exam's question 5, letter c:
Assume the rate associated with the first $1 million of coverage is analyzed using only the data above. Briefly discuss three modifications to loss and premium elements that would produce a more accurate rate analysis.
1. One modification is using only data limited at $ 1 mill or greater. Why must we exclude policies with limits under $1 mill? (or else, another alternative is doing separate analyses of basic limits rates and ILFs)
2. Another modification is limiting historical premiums to $1 million and then on-leveling them.
Why can we not reverse this process and on-level historical premiums and THEN limit them to $1 million? Instinctively, this sounds dumb to me, but I am having trouble coming up with a logical reason as to why this cannot be done.
Assume the rate associated with the first $1 million of coverage is analyzed using only the data above. Briefly discuss three modifications to loss and premium elements that would produce a more accurate rate analysis.
1. One modification is using only data limited at $ 1 mill or greater. Why must we exclude policies with limits under $1 mill? (or else, another alternative is doing separate analyses of basic limits rates and ILFs)
2. Another modification is limiting historical premiums to $1 million and then on-leveling them.
Why can we not reverse this process and on-level historical premiums and THEN limit them to $1 million? Instinctively, this sounds dumb to me, but I am having trouble coming up with a logical reason as to why this cannot be done.
Performing a rate analysis based on losses limited at $1 mill - Exam 11/2013 No. 5
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