You use the following information to determine a rate change using the loss ratio method.

1. Accident Year	Earned Premium at Current Rates	Incurred Losses	Weight Given to Accident Year
   AY8	4252	2260	40%
   AY9	5765	2610	60%

2. Trend Factor: 7% per annum effective
3. Loss Development Factor (to Ultimate):
   AY8: 1.08
   AY9: 1.18
4. Permissible Loss Ratio: 0.657
5. All policies are one-year policies, issued uniformly through the year, and rates will be in effect for one year.
6. Proposed Effective Date: July 1, CY10

Calculate the required portfolio-wide rate change.

• –26%
• –16%
• –8%
• –1%
• 7%

Copyright 2023. The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.

Key: D

Trend periods for losses: Average accident date in experience period is July 1, AY8 and July 1, AY9, respectively. New rates will be in effect from July 1, CY10 through June 30, CY12, with an average accident date of July 1, CY11. Trend period for losses are 3 years for AY8 and 2 years for AY9. Ultimate losses trended and developed are, AY8: 2260(1.073)(1.08) = 2990, and AY9: 2610(1.072)(1.18) = 3526. Weighted average loss ratio = 0.4(2990/4252) + 0.6(3526/5765) = 0.648. Required portfolio-wide rate change = 0.648/0.657 – 1 = –1.4%.

Copyright 2023. The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.