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April 2007 Qu.1(iv)

A

ActEdStudent

Member
Could I check how you calculate that the policy change will affect 12.5% of claims? Thanks.
 
claims incurred in the year come from policies written in the previous and the current year.

If our total exposure is 2 units:
1 unit from policies written in the previous year
1 unit from policies written in this year

we have 1/4 unit under the new cover:
On average claims under new cover occur middle of new cover period.

therefore 1/4 divided by 2 units is 1/8
 
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This was a tricky question, which would have been much clearer in the report if the examiners had done a table or something.

Interestingly the examiners report says "Many candidates attempted to
adjust the 2003 and prior years’ incurred claims to put them on a constant basis, rather than
adjusting the later years."

This was the approach I took and I thought (perhaps mistakenly) that this was the standard procedure.

I.e. you start with older years and 'roll forward' the loss ratios by multiplying up by inflation and dividing through by claims inflation.

e.g. 07 LR = 06 (1+inflation)/(1+rate change)


Hence in this question we needed to adjust the results from 03 and prior to find out 'what would have happened if the cover had been different' in this case we needed to adjust the 03 and prior by decreasing the loss ratios by a suitable amount to take into account the stronger terms and conditions

This is the opposite of what the examiners did.

Also the examiners calculated claims incurred then a loss ratio. I just worked with loss ratios directly, is there a reason for calculating claims incurred amounts, just appears to be extra work!

anyone have any thoughts?

i would hope in the exam that examiners would give people good marks for any sensible approach.
 
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