Web based problem (Premium Trend: 2-Step Trend)

MrJMyers05MrJMyers05
in W-05-Premium

On the second trend step, is it possible to use the Average Earned Premium and trend from average earned date to average earned date? I get the correct answers using the Average Written Premium that's given, but I'm not getting the correct answers if I attempt to use the Average Earned Premium that's given. It seems like one should be able to start from either value and end up at the correct answer, or am I mistaken? Thanks!

Comments

  • GrahamGraham

    I would have to see your calculations to give you a more detailed answer but the short answer is no, that doesn't seem like it would work.

  • MrJMyers05MrJMyers05

    Hopefully my work is easy to follow. 🙂

  • GrahamGraham

    You are not mistaken in thinking that starting from AEP could theoretically work, but in this specific problem, the setup is tailored for AWP. Attempting to use AEP without making significant adjustments in your calculations will likely lead to discrepancies because the problem's structure and provided data are based on AWP.

    In theory, you could start with AEP and attempt to derive similar results, but you would need to adjust your methodology to account for the differences in exposure timing and ensure that the trend application is consistent with how AEP is calculated.

    Here are a few other points to consider:

    • The projected premium trend of -7.0% is given directly in relation to the AWP.
    • This is a study tip: It's a great idea to investigate alternate solutions to problems because you always learn something in doing so. In this instance however, I would suggest just following the standard method. There's so much to study and it's better not to get bogged down on something that would not show up on the exam anyway.

    Hope that helps.

  • MrJMyers05MrJMyers05

    Okay, thanks! The AEP that is given in the problem then is just a red hearing, or extraneous information. And, thanks for the study tip! I do, like Alice, tend to follow the rabbit down the hole so to speak!

  • GrahamGraham

    Yup, a red herring. I know that sometimes math teachers give the advice that if you didn't use all the information given in a problem then you must have missed something, but that's not always true. (Or maybe just in high school math!)

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