PROCEEDINGS May 15, 16, 17, 18, 2005 - Casualty Actuarial Society

512 ARCHITECTURE FOR RESIDENTIAL PROPERTY INSURANCE RATEMAKING7. The hurricane portion of premium must be reportedseparately by territory per regulatory instruction inFlorida. 14 Currently, this is typically done via a complexset of extraction factors by territory a complexityremoved in the unbundled rating plan.8. Actuarially sound hurricane rates must be determinedwith the help of catastrophe simulation models, facilitatedby separation of this peril in the rating plan.9. Proposed mitigation credits in all industrial/engineeringstudies done to date are calculated as a percentage ofwindstorm premium. A crucial assumption about thewind portion of base rates would be necessary to convertthem for usage with the current rating plan.10. Experience data on “other wind” (tornado, hail, straightlinewind) events is sparse and of low credibility forratemaking, but a catastrophe simulation model can assistin determining the peril-specific rates.11. Liability peril-specific rates allow the application ofbenchmark increased limits factors (which assumeliability-only premium) rather than the dollar chargesused in some current rating plans.12. Liability premium should be separated for any loss reserving,as well as ratemaking and most managementreporting exercises a task facilitated by the unbundledrating plan.13. Many endorsements and some base premium adjustmentschange peril-specific exposures, and the chargesor credits for these should be calibrated to the appropriateportion of the base rates.In summary, key and base premiums will be determined byperil and added together to determine the total key and base14 Rule 4-170.014(12) of the Florida Administrative Code.