- TIA EXAM 5 - WERNER CH 08
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Loss Ratio versus Pure Premium Methods
- LR method relies on loss ratio:
- Requires premium at current rate level;
- If difficult or not available, PP approach is preferred
- PP method uses pure premium:
- Requires clearly defined exposures;
- If not available, LR approach is preferred
- LR method produces indicated change to current rates
- PP produces an indicated rate:
- PP must be used with new line where there are no current rates to adjust
What does the equivalency of these methods depends on?
Consistent Data & Assumptions
If not, possible that different approaches produce different results (i.e. paralellogram vs. EOE)
What would you like to do?
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