# Premium calculation for Robbin Present Value Offset method

There is a premium formula for the Robbin Present Value Offset Method that results in a different premium than if you were to calculate it based on the traditional premium formula:
P = (L*(1 + ULAE) + FE)/(1 - VE - profit) where the profit is the load calculated directly from this method.

Does anyone know why you get a different answer from these two formulas or what the logic is here?

The formula youâ€™ve typed out there doesnâ€™t take into account the discounting of losses at all. The point of the present value offset method is to adjust the profit provision from that of a reference line based on the loss payout pattern.

doesnâ€™t account for discounting at all for losses or expenses or premium received patterns or interest earned on reserves and capital (okay I donâ€™t actually remember what Robinâ€™s method is), but this can get as sophisticated as you want if you want to create a generic formula that applies to any insurance products of any duration, not just P&C

Thanks. I will assume that the two formulas are not meant to tie together in any direct way. Good to know there isnâ€™t some derivation of the more complicated premium formula that I was missing.

I use this formula: P = (L+ LAE - Loss*(PVLOBdiscount - PVRefdiscount)) / (1 - VE - U0)
where u0 is the initial starting underwriting profit.

So here you are essentially subtracting out the additional investment income/losses from the losses.

So the two do work together.

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I was surprised when I saw this question. Because I am like I specifically use that formula since you donâ€™t need to remember anything. This is one of the tricks I discussed last year in outpostâ€¦

The formula you wrote out is a lot more intuitive than the formula for premium in the Robbin text for this method. Definitely helpful - thanks!