Hi, I would like to ask a question in the Q2 about rate change. It mentioned that how the rate change may be used in the reserving process. The marking scheme in part (ii) shows that the rate change could impact: calculation of UPR falling rate may lead to needing an AURR Please could you help explain why this is the case? Thank you.
You would often calculate UPR as WP*%unearned. Since WP is affected by the rate change, it follows that UPR will also be affected. We need an AURR if the unexpired business is expected to be unprofitable. Well, if rates fall then business may well become unprofitable.
