2016 Fall Q2
in part b, the examiner report mentions that a common mistake was "confusing the concept of uniform issuing of policies with uniform earning of premium". Could please clarify in what way should we differentiate between those two things. My thought process was that the parallelogram method assumes uniform writings of policies, thus uniform earning pattern, thus we can calculate the areas, rate levels, etc to bring the earned premium to the current rate level. In other words, shouldn't uniform earning of premium also be an assumption underlying the parallelogram method? Thanks in advance.
Comments
Without seeing an "incorrect answer", It's hard to know exactly what the examiners' report meant by "confusing the concept of uniform issuing of policies with uniform earning of premium".
After policy is written, the premium is indeed earned uniformly as the coverage is provided. An acceptable answer to exam question should mention the parallelogram method assumes uniform writing of policies. So maybe the mistake some candidates made was to say the parallelogram method assumed uniform earnings (which would always be the case and therefore not a weakness of the parallelogram method.)