Loss Ratio Method

• this calculates the indicated average rate change from the current rate level

Indicated Change Factor $=\frac{P_I}{P_C}=\frac{\frac{L+E_L}{P_C}+\frac{E_F}{P_C}}{1-V-Q_T}$

$$=\frac{\text{Loss \& LAE Ratio}+F}{1-V-Q_T}$$

Indicated Avg Rate Change = Indicated Change Factor $-1$

Methodology

• We need $F$, $V$, $Q_T$
• calculate the Loss & ALAE Ratio for each years and average it out.
  • trended ultimate loss & ALAE
    • get Loss and ALAE
    • trend it
  • on-level earned premium
    • get earned premium data
    • bring to CRL