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

ARCHITECTURE FOR RESIDENTIAL PROPERTY INSURANCE RATEMAKING 541ments:² Some adjustments may be recalculated as a modification toan appropriate subset of the total base premium rather thana blanket modification of premium for possibly impertinentperils;² Some adjustments for excluded perils may be accomplished bypartial or total elimination of a portion of the base premium,simplifying the rating logic.Exhibit 15 shows how charges and credits are recalibrated toa smaller premium base when changes must be revenue-neutralin aggregate. One may tabulate the statewide distribution of basepremium by peril and policy form, then simply divide the currentcredit or charge by the proportion of the proposed premium baserepresented by the components to which the credit or charge istargeted, to make the modifier appropriate for the smaller base.Of course, the actuary may determine that larger or smaller revenueeffects are indicated and use experience data to adjust thecharges and credits in line with indications, provided the expectedrevenue gain or loss is acknowledged as an off-balancein the determination of overall rate level impact.Some examples of actuarially sensible changes to adjustmentsto base premium are:² Wind and hail exclusion may be accomplished by simply eliminatingthe base premium for hurricane and other wind in thetotal base premium calculation. Tabular factors formerly usedfor this purpose may be eliminated, streamlining rating logic.² Superior construction and storm shutter credits may be eliminated,as they are superseded by the comprehensive windstormmitigation class plan.² The seasonal occupancy charge maybeadjustedtoapplytothe(AOP + fire + liability) base premium, if it is believed that thewind resistance of the structure does not depend on occupancy.