There are two solutions provided by CAS.
1) follows the Effect/Offset Factor as described in WM book
2) is more intuitive and direct, calculating how much the base rate needs to be adjusted to actually offset the increase in premium caused by introducing a min premium of $100.
The two results are different. I think the difference comes from that 1) is assuming the adjustment to base rate would even affect the min premium. i.e., instead of $100, the minimum would be $95.90.
If my understanding is correct, WM's approach is just an approximation and the second one is in fact the correct calculation?
Any thoughts would be appreciated.
1) follows the Effect/Offset Factor as described in WM book
2) is more intuitive and direct, calculating how much the base rate needs to be adjusted to actually offset the increase in premium caused by introducing a min premium of $100.
The two results are different. I think the difference comes from that 1) is assuming the adjustment to base rate would even affect the min premium. i.e., instead of $100, the minimum would be $95.90.
If my understanding is correct, WM's approach is just an approximation and the second one is in fact the correct calculation?
Any thoughts would be appreciated.
2011 #18 Minimum Premium
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