14.2 Teng Perkin Methods Overview
Key idea:
Premium asset ~ Current losses + Expected future loss emergence + Retro rating parameters
Look at how premiums develop as losses develop
Ratio of premium development to loss development (PDLD ratio)
- Ratio can be based on retro rating parameters or historical development pattern (which leads to the 2 methods)
The 2 methods discussed here estimate premium asset over a whole book of business
Framework based on retro rating formula (requires knowledge of rating parameters for the entire book)
Estimating parameters based on empirical data (historical development)
Once the relationship is established, we can apply it to the expected future loss development to get the expected future premium development
Sum of all future premium development is the premium asset