The rate definition states "age next bithday at the prevoius policy anniversary".The company has age 40 next birthday policyholders. Hence to use the rate table I assumed an age 39 next bithday at the prevoius policy anniversary as this corresponds to age 40 next birthday..Please explain the age used in the solution.. thanks
This is how I see it... 1 Jan 2005 is when the reinsurance policy is purchased, so this is the policy anniversary, and we are told that at that point, all 1000 policies are ANB40 (under the above rate definition). So at the start of the year, everyone is ANB40. By the end of the year, everybody will be ANB41. So we should use a rate somewhere between 1.3 and 1.4. I think if you were doing it accurately, since it says "reinsurance rates are applied monthly", we would do: Exposure halfway through Jan x (12/12 x 1.3 + 0/12 x 1.4) / 12 + Exposure halfway through Feb x (11/12 x 1.3 + 1/12 x 1.4) / 12 + Exposure halfway through Mar x (10/12 x 1.3 + 2/12 x 1.4) / 12 + ... But the answer just uses an approximation to this. (I don't think it gives a wildly different answer though.)
