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 o The expected loss ratio is subtracted from the actual LR a 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 change= 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% 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% What if the projected loss ratio was 60% and the actual loss ratio was 77%: 77- 60 = 28.3% rate increase is needed 60 method G u s Mon 4:52 PM Format Arrange Tools Slide Show Window Help h ace Operation CH 7 2019 033020 actuarial. Compatibility Mode - Seved to my Mac Animations Slide Show Review View Share Com as 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