Calculate the indicated rate change with the loss ratio method, weighted for credibility.
How the rate change indication calculator works
The loss ratio method compares the projected loss ratio at current rates with the permissible loss ratio. The indication is then weighted with a complement when the data is not fully credible.
Formula
Indicated change = (Projected loss & LAE ratio + Fixed expense ratio) ÷ (1 − Variable expense ratio − Profit) − 1. Weighted = Z × Indication + (1 − Z) × Complement.
How to use it
Enter the projected loss & LAE ratio at current rates.
Enter fixed and variable expense ratios and profit provision.
Enter credibility and the complement.
Worked example
A 76% projected loss & LAE ratio with 7% fixed, 21% variable and 4% profit indicates +10.7%; at 75% credibility with a 3% complement, +8.75%.
Frequently asked questions
What is credibility?
How much weight the book’s own experience deserves, from 0 to 100%, based on its size and stability.
What should the complement be?
Common choices are the trended prior indication, a larger related book or the industry indication.
Indicated Rate Calculator — Calculate an actuarially indicated rate from pure premium, fixed expenses, variable expenses and profit (pure premium method).
Combined Ratio Calculator — Calculate the combined ratio — loss & LAE ratio plus expense ratio — with statutory or GAAP basis, underwriting profit and operating ratio.
Loss Ratio Calculator — Calculate the insurance loss ratio (incurred losses ÷ earned premium), with or without LAE, against a target.