Exposed to risk
I think the trouble with the CT4(104) exposed to risk question is probably the assumptions.
You had to make an assumption regarding the premiums: in advance or arrears - all they said was that they're annual premiums. (They'll probably shank us if we didn't state the assumption, even if the answer is correct.)
For the sensus approach you have to assume lapses occur uniformly over the year of age, which is probably fairly reasonable, but lapse rates are influenced more by duration than by age. A different mix by duration for each age will lead to misleading results. The economic cycle also influences lapse rates. (Btw, is it worthwhile in practice to do a lapse investigation using this data if it's not really going to give much insight into lapse experience? Rather do it by duration, or duration and age, and try to take the economic conditions into account.)
Of course, I only thought of these things after the exam.
Last edited by a moderator: May 24, 2006