Hi, Could somebody help me understand the solution for question 2 ii)? I don't follow why the amount of earned exposure would be 8.5 months say, for the policies written on the first day of September. Wouldn't we only be exposed to the risk for September policies for 4 months (until the end of 2006)? I think i'm having similar issues on other questions where we are told to convert the exposure from calendar year to policy year etc. Any help would be appreciated. Thanks, Tharandeep
Hi Tharandeep, Before looking at the answer I also solved with assumption risk exposed is evenly over the year.(just like you) so got average, \(\frac{10*1000+10.5*1500+11*2000+11.5*2500}{7000}=10.93\) ... (as they said,"In each case, alternative assumptions are valid if correctly applied." no need to worry) now to their answer, they assumed risk exposed even over a month for each month. so we need to take month-wise. policy exposed at the start of the September 1000 and occurrence at mid-September(i.e. 8.5 from the start of the year) & policy exposed at the start of the October 1000+1500 and occurrence at mid-October(i.e. 9.5 from the start of the year) and so on. so got average, \(\frac{8.5*1000+9.5*2500+10.5*4500+11.5*7000}{1000+2500+4500+7000}=10.67\)