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Q&A Bank - Q3.8

F

f888bet

Member
I'm confused by the calculation of expenss per policy.

I agree that if you assume £1 @ 1/1/09, then inflating this for 6 months to the average policy start date, you get £12.74.

However, (n) states that policy expenses are paid 9 months after inception. So, don't you need to discount £12.74 by 9 months (i.e. frrom the average policy inception to get the value of expenses as at the policy start date? This would give expenses of £11.65, & would be consistent with the present value of £852.52 for the claim cost. It seems totally unintuitive to discount the £12.74 by 3 months after the average policy inception!

Am I right in what I'm saying?
 
I think the point here is that the information given on the per policy expenses isn't 100% clear.

The solutions assume that these expenses are paid 9 months after the initial inception date ie on 01/10/09 and so only discount for 3 months to get back to 01/07/09.

However it's also perfectly valid to assume that they are paid 9 months after the average inception date ie on 01/04/10. This would give a per policy expense figure of £11.65 at 01/07/09 and would maintain consistency with the claims assumptions and calculations.

Coralie
 
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