24th method

[shana]

Hi
I know its a bit silly, but i just dont get the glossary definition for this term. if we are talking about a yearly premium, why divide by 24 and not 12??
can anyone elaborate? thanks
Shana

 

[Ian Senator]

This is covered more fully in Subject ST7, although Chapter 0 of ST8 also introduces the idea of UPR briefly.

One of the assumptions of the 24ths method is that policies are written evenly over each month (ie on average, half way through each month). Does that give you enough of a hint?!

 

[shana]

This is covered more fully in Subject ST7, although Chapter 0 of ST8 also introduces the idea of UPR briefly.

One of the assumptions of the 24ths method is that policies are written evenly over each month (ie on average, half way through each month). Does that give you enough of a hint?!

Hi Ian
I guess so...
although the definition applies to policies made on the first month (not first half on the month) so I would still expect to have a UPR for 11/12/Prem paid

 

[Calum]

A simple way of thinking about it is to add up all the whole months for which it applies and then add half a month for the average half month in which it is written.

So for a policy written in July 2010 and a reserve calculated at Dec 31 2010, you have 6 months from Jan-June 2011 plus a half month for July 2011, or 13/24 of a year's premium.

 

[Ian Senator]

Hi Ian
I guess so...
although the definition applies to policies made on the first month (not first half on the month) so I would still expect to have a UPR for 11/12/Prem paid

Not quite - look more closely - the definition says for policies written IN the first month. Which on average are written mid-January, which leaves 1/24th of the exposure beyond the year-end.