Mock Exam A Ques 1

Discussion in 'SP7' started by freebird, Sep 20, 2012.

  1. freebird

    freebird Member

    Hi,

    I am having problems in understanding the exposure split for Product X.
    I understand that the total risk units will be = 4 (3*1 + 1*2) = 20 units

    After that I followed the way it has been explained for Q&A 3.16 and 6.15 and I am getting 5 units of unexpired risk which doesn't match with the 8.5 units in the solution. Could you please help.

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    Also, when calculating URR why it is multiplying with 1.1?

    I thought URR = Expected loss ratio * Gross Unexpired Premium ---which is 200/2 = 100 according to me. In short why are we taking the next year's premium?

    Thanks in advance!
     
    freebird, Sep 20, 2012
    #1
  2. Katherine Young

    Katherine Young ActEd Tutor Staff Member

    Dear Freebird,


    I've attached an explanation of the UPR calculation for Product X. Have a look at it and see how you get on.

    We are includling an allowance of 10% for claims handling expenses.

    URR would be "expected loss ratio x UPR x claims handling expenses x discount factor". Your figure of 200/2 is only the UPR.

    Note that in many questions the examiners give you an historic loss ratio, so you would also need to allow for rate changes and claims inflation. This is not the case for this question however.

    "Unexpired premium" is not a valid term. You can have unearned premium (the portion of premium that hasn't yet "done its work"), or you can have unexpired risk (claims arising from the unearned premium).

    The examiners really hate it if you get this wrong, so be careful with your terminology.

    Good luck!

    Katherine.
     

    Attached Files:

    Last edited: Sep 21, 2012
    Katherine Young, Sep 21, 2012
    #2
  3. freebird

    freebird Member

    Thank you Katherine!

    (I typed a long response as I didn't understand it... but it suddenly clicked!)

    I was actually seeing this as a quarterly business - so risks underwritten in Q1 would be totally earned by Q2...and was getting lost.

    But I understand now. Thanks again!
     
    freebird, Sep 21, 2012
    #3

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