Exam 5: Separate indicated rate change from the chosen implementation
An overall indication adjusts experience to a comparable historical basis and projects costs to the future period. The implemented change may differ after business and regulatory consideration. Your calculation and recommendation should identify which quantity they represent.
Worked example or practice scenario
In a toy pure-premium calculation, prospective loss and expense cost is 84 per exposure, fixed expense is 6, variable expense is 20% of premium and margin is 5%. Required premium is (84+6)/.75=120. Against current premium 100, the indication is +20%.
Try this next
State every expense basis before using the denominator. Then explain why an implemented 12% change would not make the indication 12%. Calculate the residual gap and identify what assumption or decision would need documenting.
Reading sources
ActNet editorial guide · October 1, 2026 · Original illustrative examples.