2. The loss ratio on the gun collection policies written by Acme insurance Co. was 82%, while the expected loss ratio is 65%. Using the Loss Ratio Method, determine the recommended rate change, and the new rate per $1,000. If the current rate was $6.00 per $1,000. of coverage, what will the new rate be? (3 points) Ratemaking Methods .Loss Ratio Method The expected loss ratio is subtracted from the actual LR The difference is then divided by the expected loss ratio The resulting % difference becomes the recommended rate change LOSS RATIO RATEMAKING METHOD - The loss ratio method uses two loss ratios during the selected experience period: Actual loss ratio =incurred losses / earned premiums Expected loss ratio =100% - Expense provision Rate changer actual loss ratio - expected loss ratio expected loss ratio Negative arate reduction Positive arate increase Calculate a rate change using the loss ratio method - Actual Earned Premium $4,500,000.00 Actual Incurred Losses and LR Expenses = $3,000,000.00 o 30/45 = 66.66% is actual loss ratio, . The actual loss ratio = 66.66% . The projected loss ratio is 75% What if the projected loss ratio was 60% and the actual loss ratio was 77%: 77 - 60 = 28.3% rate increase is needed 60 Format 65% us. Mon 4:52 PM a Arrange Tools Slide Show Window Help 8 Insurance Operations CH 7 2019 033020 actuarial - Compatibility Mode-Saved to my Mac Animations Slide ShowR eview View Share .co Loss Ratio Measures what you pay out in losses compared to your premium income. Loss ratio = Incurred losses plus loss adjustment expenses (divided by) the earned premium 65% or less is good Click to add notes 6 5% us Mon 4:52 PM Q Format Arrange Tools Slide Show Window Help 8 2 Insurance Operations CH 7 2019 033020 actuarial - Compatibility Mode -Saved to my Mac 1 Animations Slide ShowR eview View Share .co Loss Ratio Measures what you pay out in losses compared to your premium income. Loss ratio = Incurred losses plus loss adjustment expenses (divided by) the earned premium 65% or less is good Click to add Calculate a rate change using the loss ratio method Actual Earned Premium $4,500,000.00 Actual incurred Losses $3,000,000.00 This loss ratrio is 66.66% . Projected loss ratio 75% 66.66% - .75% = -8.3% - - 11.11% .75% 75% Company can reduce rates by 11%