Q17, Day 2 (of 3) Handout (PMI Reserving)

This question is in the 2nd tutorial handout given to me as part of 3 day regular tutorials for ST1.

The question asks you to work out the unearned premium reserve (UPR) and the additional unexpired risk reserve (AURR) for PMI as at 31/12/2010. You are told that premiums of £900,000 were written in 2010 and that policies are annual and commence on 1st July each year. You are also told that claims inflation is 10% pa.

In the answer the calculation of the URR considers considers claims outstanding at 31/12/11 when working out how far to project forwards when applying the claims inflation of 10% pa.

I don't understand why we wouldn't just consider claims outstanding at 31/12/10 for this bit since surely any business written in 2010 would have expired by 31/12/11. Am I missing something or not understanding something here?

 

I've just got it confirmed that the dates are wrong! To answer the question as written, ALL the years quoted in the solution should be reduced by one year. Alternatively, if you increase the calendar years quoted in the question, then the given solution will be correct.

Sorry about this - we shall put this correction up on our website shortly. Apologies for any confusion, but this should sort out your problem for you (ie it wasn't your problem!)

Good luck!
Robert

 

Thanks for your response. That's good to know, I thought I was really not getting something!