2015 Fall 15 b
When we using pro rata to calculate EP premium, should it be 1000 *9/12 since it is written on 4/1?
Thank you
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When we using pro rata to calculate EP premium, should it be 1000 *9/12 since it is written on 4/1?
Thank you
Comments
The examiners were trying to trick you. The 4th bullet point says:
This is from Exam 5 on pricing where 1/24 of the EP is earned in the 1st month a policy is written. Even though the policy was written on Apr 1, the pro-rata method assumes it was written in the middle of the month. Then for the next 11 months, 1/12 of the EP is earned. Then in the final (13th) month, the last 1/24 of EP is earned.
I know the question says the policy was written on Apr 1. That makes it seem like you would earn 9/12 of the EP in 2014. But since they also told you to use the monthly pro-rata method, you had to earn the premium using the method they stated.
Oh okay. Thank you
Nevermind.
I really dislike this question.
This is one of those questions where you could get bogged down for far too long. And it's got so much information to absorb and process, your brain will be fried by the time you finish it.
If it were me, I probably wouldn't have done the pro-rata earning. I would have just used 9/12 and sacrificed the 0.25 pts. I would then make sure I wrote down all the relevant formulas because you'd get some partial credit for that. Then just plug the given the information into those formulas as best you can. You're going to get a bunch more credit for that. Even if you don't get to a final answer, you have to play the odds: do what you can and move on to questions that you know you can answer. The worst thing is run out of time on the exam and leave questions blank that you know the answer to.
I think it is actually a really good problem, but the wording in a) had me peeved. My question above (that I changed to "nevermind") was asking why the changes in the unrealized gains and reinsurance provision were the answers, when they specifically ask for things that do NOT flow into the statement of income. But, in statement of income, those are there on lines 24 and 28.
I spent 30+ min of my time trying to dissect friggin semantics. Anyway, I probably should have kept it there for the benefit of others, but I deleted it thinking I was the only one in the world that would get confused.
Hi @DestinP,
Thanks for going back and including your comment. For every person who actually writes a comment, there are probably many others with the same thoughts. So what you wrote is definitely always helpful to others.
In general, this type of problem is a good problem because you have to take lots of information and figure out how to use it (or not use it) in solving it. It's much closer to a real-life problem than ones where you just apply a formula that you've memorized.
My issue with this as an exam problem (aside from the one you raised) is that in an exam setting you really don't have a lot of time to ponder nuances. In my ideal fantasy world, part of an actuary's formal education would be some sort of Master's thesis where you'd attack a significant case study requiring research and synthesis of large amounts of information - one where there might not be a single "correct" answer.
But given that virtually the entire formal education process for actuaries is based on exams, the range of what can reasonably be tested is unfortunately quite narrow. The examiners do try from time to time to create questions that require more than just memorizing facts or following a standard procedure. Sometimes that works, sometimes it doesn't. As an alternative, it would be great if the education system could be split into 2 components:
Just my 2 cents! When you guys are fellows, you'll have a lot more say in how this all plays out for the future!
What is actually meant by "changes in Surplus that do not flow through to the IS"?
These would be the likes of change in unrealized capital gains that do not hit the net income.