Fall 2019 Q11

I am confused about the information presented in the problem regarding the calculation of EP.

If we're assuming that the $200k WP is the premium for the singular WC policy, I think the EP should also be $200k since the second bullet of the problems tells us it's all earned on the day it's written.

The solution makes complete sense to me if that second bullet wasn't there. How are we suppose to interpret it?

Comments

  • Nevermind again - I think I am confusing "collected" vs. "earned" as being synonymous with each other when they're not

  • Yes, that's correct. (The insurer is in possession of the premium payment on Apr 1, but it then must be earned month-by-month over the policy term.)

  • Hello! Is the monthly pro rata method the same as the 24ths method that was covered in Exam 5? I thought it was strange that the examiner's report accepted both 9 months and 8.5 months as the time the policy had earned premium without commenting on it. Is it because the problem stated that the policy was effective on April 1 but then also said to use the monthly pro rata method?

  • Yes, they are the same. Werner & Modlin refer to it as 24ths method (see page 60) and Odomirok refers to it as the monthly pro-rata method (see page 37).

    Its application in this problem is inappropriate. It is meant for the context of having multiple policies and making the assumption that they all incept on the 15th of the month. There is no need for such an assumption here, as there is only one policy.

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