I would like to know how is "Investment income is made up of $126,825 on initial capital and $28,265 on premiums less claims and expenses." calculated? Many Thanks!
Tutors the solution says exposure unit=no of policies exposed in that month*likelihood of a claim. 100 policies were written on first day of month 1. claim frequency is double in January,February,November and December than it is in other months of the year. How are we using this information to get the likelihood of a claim? e.g. how do we obtain exposure unit as 2 in january?
Exposure Unit = No of policies exposed * likelihood of claim 100 policies sold at the start of each month. (nb first year of trading so no policies from previous years.) For January 100 policies exposed, claim frequency double March-October, so call it 2 units. Hence exposure units = 100 x 2 = 200 (or 2 working in units of 100). So for February 200 policies exposed, 100 from January (assuming annual policies) and 100 from February and again double frequency. Hence exposure units = 200 x 2 = 400 (or 4 working in units of 100) Repeat for other months.
