Question: 1. Class A is the base class. Using both the pure premium and loss ratio methods, determine the new differential for Class B and Class C given the following information:
|
Class
|
Existing Differential
|
Current Base Rate
|
Experience Period Loss Ratio at Current Rates
|
Pure Premium
|
Earned Exposures
|
|
A
|
1.00
|
100
|
0.71
|
126
|
400
|
|
B
|
0.91
|
91
|
0.66
|
107
|
260
|
|
C
|
1.18
|
118
|
0.59
|
124
|
340
|
The regulator has required that you decrease aggregate premiums by 5%. What rates should be established to meet this target, assuming earned exposures do not change? Clearly state the balance back factor, the aggregate premiums that are projected to be collected for each Class and be sure to show your calculations.