This is clearly quite a difficult question, and I'm struggling to make sense of it even with the solution in front of me!
The examiners' report made it clear that the table of premiums was ambiguous, but that there was an explanation to be sure it was clear.
I don't see why the UPR for the return premium component is calculated as:
(1,375 + 2,175+ 3,127 + 3,174)/11 = 896
I would have calculated it simply as 3,174/11. This is because only 3,174 was written in 2013, and therefore this is the only premium amount for which there is the possibility of a return premium being paid. Why does the solution include the previous three years?
One explanation is that although only 3,174 worth of premium is exposed to return premium payment, the prior years' premium still contributed to the fund which will be paid back to policyholders. But then surely that would result in the calculation being:
(2,675 + 4,075 + 4,335 + 3,174)/11 i.e. the 10% component of the full written premium amounts paid each year.
I just don't like the idea of adding up the "written premium for policies still being renewed from previous years", since the earlier years are subsets of the later years.
Last edited by a moderator: Apr 18, 2015
