Question

Assume an actual loss ratio of 75% and an expected loss ratio of 50%. According to the loss ratio ratemaking method, how much should premiums increase in the next period?

Answer 1

Using the loss ratio ratemaking method, if the actual loss ratio is 75% and the expected loss ratio is 50%, premiums should increase by 50% for the next period.

Step-by-step explanation:

To calculate how much premiums should increase in the next period using the loss ratio ratemaking method, one can follow this formula:

New Premium = Current Premium × (Actual Loss Ratio / Expected Loss Ratio)

Given an actual loss ratio of 75% and an expected loss ratio of 50%, to find the necessary premium increase, the calculation would be as follows:

New Premium = Current Premium × (0.75 / 0.50) = Current Premium × 1.5

This suggests that, according to the loss ratio ratemaking method, premiums should be increased by 50% for the next period to align with the actual loss experience.