Hi I am stuck at the first hurdle on this question. I feel like i'm missing something straightforward here as the solution just states the tables without showing any calculations, but I cant understand how we derive the "exposure units" given for Years 1 & 2. The solutions says: Exposure Unit of a Month = (# Policies exposed in that month) * (Likelihood of a claim) So take for example March. By the end of March, 300 policies will have been sold ==> 300 policies are exposed. The solution shows that the exposure unit for March is 3. Therefore from the formula above I can conclude that the likelihood of a claim in March is 0.01 (and 0.02 for those months that the question says have double the claim frequency). I am unsure where to get this 0.01 figure from however, without working backwards from the solution given. I would appreciate your help is solving this!
More straightforward than that! These are all 'units'. January: 1 policy sold, at double frequency (risk), so 2 units. February: 1 policy sold at double frequency (2 units) plus the 2 units from the policy sold in January. Total 4. March: 1 policy sold at single frequency (1 unit), plus the unit from the policy sold in Jan plus that in Feb. Total 3. Etc.
