Premium Trend Revisited

Premium trend has been an integral part of the ratemaking process. The Statement of Principles Regarding Property and Casualty Insurance Ratemaking lists it in its enumeration of considerations for trends. However, current models for estimating the premium trend have been limited to an exploration of changes in the base exposure. Limiting the premium trend to simply reflect changes in the base exposure can produce a biased indication, as internal loss trends implicitly reflect distributional shifts underlying the rating plan, while the exposure based premium trend fails to incorporate such changes. A methodology for determining premium trend that expands beyond the traditional methods is discussed and the theory underlying the proposed methodology is developed.