Exposure

[jonathans]

S2012 Question 1 - what are they asking here? even after reading the answer I didn't understand what the question is.
Their answer just looks like a bunch of random facts regarding EL exposure - can someone explain what they are expecting to see here?

 

[Hemant Rupani]

Their answer just looks like a bunch of random facts regarding EL exposure - can someone explain what they are expecting to see here?

Hi jonathans, here I'll try to provide the same answer in general way(in exam, specific to given policy and given exposure measure is needed to explain).(I think 1/2 mark per point is good estimation, subject to providing broad ideas.)

So, what factors should we consider to determine the exposure for the purpose of pricing?
exposure measure that is given

1. exposure period is policy period(i.e. future) - so, will consider actual(from past) and expected(for future) risks dates.
2. ... actual and expected number of staff with risk-adjusted homogeneous groups
3. basis for coverage(loss-occuring or claims-made, risk attaching may not be relevant for direct insurance business)
4. ... if loss-occurring, then prospective number of staff by risk-adjusted groups
5. ... if claims-made, then past risks(from retrospective dates) and future risks that are expected to reported within policy period.(delay table can be used)
6. moving between, coming in, going out of risks.
7. partial risks (i.e. part-time staff)
8. quality, quantity and relevancy of data.

 

[Katherine Young]

Hemant makes some good arguments here. I'd also add the following:

• "discuss" often means you can talk about advantages and disadvantages of the proposed method, or you may even get marks for describing how to improve the proposed method
• pricing questions are often "modelling" questions in disguise, so think through the steps in the pricing process (or the steps in a model from CA1 even), for example think about what data you would need, how you might need to adjust the data, how you should group the data, etc
• you know that EL is often priced using experience rating, so it's a good bet you'll get marks for describing how the exposure might change over the period, and how this could be incorporated into a retrospective experience rating approach

 

[jonathans]

Hemant makes some good arguments here. I'd also add the following:

• "discuss" often means you can talk about advantages and disadvantages of the proposed method, or you may even get marks for describing how to improve the proposed method
• pricing questions are often "modelling" questions in disguise, so think through the steps in the pricing process (or the steps in a model from CA1 even), for example think about what data you would need, how you might need to adjust the data, how you should group the data, etc
• you know that EL is often priced using experience rating, so it's a good bet you'll get marks for describing how the exposure might change over the period, and how this could be incorporated into a retrospective experience rating approach

Katherine, I have another question about the "discuss", quoting another answer of yours "The examiners have very little freedom these days to award discretionary marks for points that are not in the marking schedule." - what exactly is meant by "discuss" in ST8?

I will only get marks for improvement if they are in the marking schedule?

Thanks!

 

[Katherine Young]

Hi again.

what exactly is meant by "discuss" in ST8?

The IFoA Student Handbook gives you an explanation of all the "commend verbs" used by the examiners. Here's the link: https://www.actuaries.org.uk/studying/student-news/student-handbook.

I will only get marks for improvement if they are in the marking schedule?

Yes that's right, unless there are one or two floating marks available for other valid points that aren't on the marking schedule, but this is unlikely these days.