Exam 5: On-level premium and loss trend adjust different things
On-levelling puts premium on a selected common rate basis. Loss trend projects claim costs across time. Applying one is not a substitute for the other, and the appropriate averaging periods depend on the data and policy earning pattern.
Worked example or practice scenario
If premium at an old rate level is 1m and a uniform 10% rate increase applies to a fully comparable period, on-level premium is 1.1m in this simple illustration. Separately, trended claims may increase because of severity or frequency changes.
Try this next
Create a timeline for a midyear rate change and annual policies. Explain why earned premium will contain a mix of rate levels. Avoid multiplying all premium by 1.10 when the experience already includes some of the new rate.
Reading sources
ActNet editorial guide · October 1, 2026 · Original illustrative examples.