Is it valid to use the number of months exposed at each annual rate to derive policy year exposure as a weighted average? i think this will give the same result when periods are of the same length, but for example policy year 2009, the solution is (6x71+4x75)/10 i did 6 months at 71 and 6 months at 75 giving (6x71+6x75)/12 and for the year before i had (10 months at 70 + 2 months at 71) /12 my numbers are close but would i get credit?
I used the same logic as you George88. However the answer is not the exact same as the provided solution so just wondering about this. I don't get the logic of using the denominator as 10 for the policy years 2008 and 2009. Can anyone help with this please?
The mid-points of the fiscal years are: 1/11/2007 1/11/2008 1/09/2009 1/07/2010 1/07/2011 Sometimes these are 12 months apart, sometimes they are 10 months apart. Hence the different denominators.
Thanks for your comment Katherine. What I don't understand though is the breakdown of the weights used for the 2008 policy year i.e. (8/10)*70 + (2/71)*10? How do we get our 8 and 2 here please? Thanks a million for your help.
We need to take the mid-points of fiscal years and policy years. Fiscal years have mid-points: 1/11/2008, payroll = 70 1/09/2009, payroll = 71 Policy year 2008 has mid-point 1/1/2009, and we need to estimate the payroll. So we interpolate between the fiscal year dates: 1/1/2009 is 2 months after the first FY date, and 8 months before the second FY date. So we apply 8/10 weighting to the first date, and only 2/10 weighting to the second date.
In adjusting trended ultimate claims/ exp, why is it 0.77 and not 0.7? It says they have estimated 30% excess and not 33% due to economic situation, isn't it?
The question says that there has been a 30% increase in TOTAL claim amounts due to the economic climate. So you need to divide the total by 1.3 to remove the effect of the economic climate. That is equivalent to multiplying by 1.0/1.3 (or 100%/130%) which is a factor of 0.769 which is what is used in the ER.
Why are we applying 8/10 weight on the first date and 2/10 on the second date ? why is it not the other way around?
