An insurer is considering a rate change for annual policies that will be written in calendar year 4. The experience period used to determine the rate change is accident year 1. If loss cost inflation is 1.5% per year, what is the trend factor ?

• 1.0535
• 1.0612
• 1.0675
• 1.0693
• 1.077

The experience period is accident year 1 and the midpoint of the experience period is 07/01/CY1. Since the policies are annual, the forecast period is the beginning of calendar year 4 to the end of calendar year 5 with a midpoint equal to the end of calendar year 4. Hence the trend factor equals 1.015 ^4.5 = 1.0693.