Had a couple questions on the following exam problem:
- What does “Normalized” mean, e.g. in the context of Normalized Current Relativities? I know we calculate that by dividing the current relativity per class by the exposure weighted average of the current relativities, but am lacking the conceptual aspect.
- After we calculate the Credibility Weighted Indicated Relativites, why do we need to normalize again?
- Finally, what is the purpose of the Off Balance? My guess is that we calculate a total relativity change and because we would like a revenue-neutral overall change, we need to divide by our total relativity change. Is that true?
Here’s the solution I was looking at for reference:
Sorry for the long question. I’m constantly confused on these types of questions so any help is appreciated.