1. The Indication - Is That your Final Answer CAS Ratemaking Seminar March 7, 2002

2. Introductory Session 4 Mark Homan The Hartford Roger Schultz Allstate

3. Overview  Interpreting the Indication  Marketplace  Expected Reactions  Non-rate revenue Alternatives  Testing the Action  Market Models – Putting it All Together

4. Why it’s not “The Final Answer”  Indication is too low  May lead to profit problems  Don’t need to drop rates that much  Indication is too high  Will lose customers  Regulators won’t allow  Not really needed

5. Interpreting the Indication  Data Anomalies  Large Losses  Weather Effects  Changes in Statutes  Changes in Company Practices  Underwriting  Claims  Planned Changes

6. Marketplace  Competitive Position  Recent Competitors Actions  Projected Future Changes

7. Competitive Position  Various measures of competitiveness  Percentage of Competitor rates  Single Competitor  Average of Group of Competitors  Win Rate  Percentage of cases when you have best rate, or within $X of best rate

8. Competitive Position  Indication of +8.7%  Competitive Position – 20% below  Resulting Position – 13% below  Competitive Position – 10% above  Resulting Position – 20% above

9. Competitor Actions  Recent Changes –  Not reflected in competitive position  Reflected in competitive position  Indicative of future changes

10. Expected Reactions  Policyholder  Retention  New Business  Agents  Regulators  Recent Approvals

11. Non-rate Revenue Approaches  Revenue Indication, not Rate Indication  Expense Actions  Underwriting Guidelines  Marketing Plans

12. Testing The Plan  Expert Judgment  Intuitive Evaluation  Elasticity of Demand around similar changes  Scenario Modeling

13. Scenario Modeling

19. Speaker Contact Information Mark Homan AVP & Actuary, Personal Lines Pricing The Hartford Hartford Plaza, T-1-55 Hartford, CT 06115 Phone: 860/547-2015 Fax: 860/547-2013 E-mail: mhoman@thehartford.com