Exam B-01, #7c

snpod5snpod5
in Practice Exam 3

Hi there! Can you help me understand the explanation behind the answers for (c-i) and (c-iii) in Question #7 of this practice exam? More details on each part are below ...

Given: four 6-month auto insurance policies each with an effective date of Nov 1, 2023.

(c-i) Written exposures for CY 2023, assuming one policy cancelled Dec 1, 2023 --> answer key = 1.5

  • I approached this as [ 4 policies written on Nov 1 * 0.5 car years per policy ] MINUS [ 1 policy cancelled on Dec 1 * 0.5 car years per policy * 5/6 of policy term cancelled ] = 2 - 0.4167 = 1.5833

(c-iii) Written exposures for CY 2024, assuming one policy cancelled Feb 1, 2024 --> answer key = -0.5

  • I approached this as [ 0 policies written in 2024 ] MINUS [ 1 policy cancelled on Feb 1 * 0.5 car years per policy * 3/6 of policy term cancelled ] = 0 - 0.25 = -0.25


Thanks for your help!

Comments

  • GrahamGraham

    For (c-i):

    • You are getting confused between calculating written exposures versus earned exposures. For written exposures, you count the number of policies written in 2023 that are still in-force at the end of 2023 (this is 3) and then MULTIPLY by the term (which is 0.5).
    • So, in your formula, do NOT multiply by 5/6 of policy term. The remaining term is not relevant for written exposures.

    For (c-iii):

    • You made the same error here. The number of policies written in 2024 is negative 1 (because the policy was cancelled) but since it is a 6-month, it only counts for 0.5, so the final answer is -0.5.
    • Whatever term was remaining on the policy is not relevant since we are calculating written, not earned, exposures.
  • snpod5snpod5

    Ah, rookie mistake. Thanks!

  • GrahamGraham

    It's good to get those rookie mistakes out of the way on the practice exams!

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