Rate Revision Adjustment Factors

Any line of insurance which uses the loss ratio method in rate making relies very heavily on an accurate premium base. If exposure data were available, a pure premium method would most likely be used but in the absence of proper exposure data, the rate revision adjustment factor is vital to the determination of the premium base. Without it, this valuable rate making method based upon loss ratios would be impractical. Rate revision adjustment factors are also useful for individual companies in evaluating their loss experience, projecting premium volumes, establishing comparative statistics under varying rate levels and in budgeting problems where the available amount of expense loading is desired. With so many uses, one would expect to find some literature on the subject, but our Proceedings has never had such a paper presented. Of course, it would be unnecessary to devote much space to a subject if no problems presented themselves or if the solutions to the problems were obvious. Neither is true in this instance, since problems do exist in this area and the solutions are at times difficult and the results surprising.