Exam 6 - Question 4

[KindGrind]

This question was about Hayne.

I'm trying to get the best key I could so here is my question:

The right way of calculating the UEPR according to Hayne is to take the maximum of each test for the 3 most recent policy years and the max of the 3 tests for the aggregate of older years.

I was just wondering if those people who got D calculated it like that.
To get A, you had to calculate the maximum of each test in the aggregate
To get E, you had to calculate the maximum of each test by policy year and add them

So I would guess the answer would be D, any thoughts? (Right now, out of 11 lists, I got 7E, 3D and 1A)

Thanks!

[Argh!]

I couldn't remember the rule during the exam, but that's how you do it. I looked it up afterwards and recalculated it.


Any idea when the multiple choice answers will be posted?

[KindGrind]

I have no clue when it's going to be release, but you could send me your answers and i could give an approximation if you want. There's a consensus on most of the questions.

[Argh!]

c
c
c
a (wrong)
d
a
b
e
e
d
b
c
c
a
c
b
c
e
skip

[Avi]

Another one wrong :(

[Wesley_Willis]

Another one wrong :(

I bet a lot of people didn't get that one right. I learned how to do the three tests, but not this part.

Hayne: Failure is in the wind...

[EraserGuy]

Here's a long explanation for why I feel the answer key should accept both D and E for question 4.

To quote Hayne:

"For each of the most recent three policy years, the UEPR must be at least as large as each of these three tests. The UEPR for older policy years in the aggregate must be at least as large as each of the following amounts: the total for all older policy years for Test 1, the total for all older policy years for Test 2, and the total for all older policy years for Test 3."

I calculated the UEPR two different ways. Initially, I just summed up the biggest value from each year, resulting in answer E. Then, I remembered something about the latest three years / prior years distinction, and I calculated it according to the quoted text above, resulting in answer D.

Unfortunately, I second-guessed (or would it be third-guessed?) myself at that point and decided that I was probably confusing the three-year rule with the three-year simple average used in some reserve development methods. So, I ended up going with answer E.

Here's the point of my post: for those of you who answered E, I think there may be hope. Despite the quoted text above which clearly suggests that answer D is correct, take a look at Tables 2, 3, and 4 in Section 6 of Hayne's paper, along with the following quoted text appearing just before Table 2:

"Tables 2, 3, and 4 give the unearned premiums if these were the only policies written, and assuming the NAIC procedures."

Table 2
CONTRACT 1, $100.00 RATE

Year___Test 1__Test 2___Test 3____UEPR
0_____100.00___84.21___67.73__100.00
1______90.00____3.40___70.33___90.00
2______70.00___75.11___65.77___75.11
3______50.00___53.83___48.34___53.83
4______30.00___27.97___25.59___30.00
5______10.00____7.80____7.23___10.00

[please disregard the underscores; I'm just using them to align the columns]

Based on this quote, Hayne specifically references use of the NAIC procedures in Tables 2 through 4, and in all three tables, the UEPR is shown as the largest value for EACH SEPARATE YEAR, thereby ignoring the latest three years / prior years methodology. For example, in Table 2 shown above, the Test 1 UEPR is chosen for years 0-1, while the Test 2 UEPR is chosen for year 2. Table 3 only shows three years so that doesn't demonstrate anything, but Table 4 actually shows 4 prior years--Test 1 is chosen for the oldest two years, while Test 2 is chosen for the next oldest two years.

The CAS question states, "Based on Hayne's description of the NAIC rules for determining the UEPR..." Given the text before Table 2, combined with Tables 2 and 4 in Hayne's paper, I think you can make a strong argument for answer E.

I'm planning on writing in to the CAS regarding this question once the preliminary MC answer key comes out. If you feel similarly to the way I do and would also like to write in, I'd appreciate it. Thanks!

EraserGuy

[KindGrind]

I think the problem is, eraser, that those tables shows values for policy ages, not policy years. no?

[islas_del_maiz]

I may be wrong, but I think in the examples the years are for a single PY and shows the different test numbers as the PY progresses. It is not different results for different PYs.

Here's a long explanation for why I feel the answer key should accept both D and E for question 4.

Here's the point of my post: for those of you who answered E, I think there may be hope. Despite the quoted text above which clearly suggests that answer D is correct, take a look at Tables 2, 3, and 4 in Section 6 of Haynes' paper, along with the following quoted text appearing just before Table 2:

"Tables 2, 3, and 4 give the unearned premiums if these were the only policies written, and assuming the NAIC procedures."

Table 2
CONTRACT 1, $100.00 RATE

Year___Test 1__Test 2___Test 3____UEPR
0_____100.00___84.21___67.73__100.00
1______90.00____3.40___70.33___90.00
2______70.00___75.11___65.77___75.11
3______50.00___53.83___48.34___53.83
4______30.00___27.97___25.59___30.00
5______10.00____7.80____7.23___10.00

[please disregard the underscores; I'm just using them to align the columns]

Based on this quote, Haynes specifically references use of the NAIC procedures in Tables 2 through 4, and in all three tables, the UEPR is shown as the largest value for EACH SEPARATE YEAR, thereby ignoring the latest three years / prior years methodology. For example, in Table 2 shown above, the Test 1 UEPR is chosen for years 0-1, while the Test 2 UEPR is chosen for year 2. Table 3 only shows three years so that doesn't demonstrate anything, but Table 4 actually shows 4 prior years--Test 1 is chosen for the oldest two years, while Test 2 is chosen for the next oldest two years.

The CAS question states, "Based on Hayne's description of the NAIC rules for determining the UEPR..." Given the text before Table 2, combined with Tables 2 and 4 in Haynes' paper, I think you can make a strong argument for answer E.

I'm planning on writing in to the CAS regarding this question once the preliminary MC answer key comes out. If you feel similarly to the way I do and would also like to write in, I'd appreciate it. Thanks!

EraserGuy

[EraserGuy]

The CAS may decide to interpret it that way, but the paper doesn't make any real mention of policy age or how it relates to the NAIC rules. Tables 2, 3, and 4 are labeled "Year" as opposed to "Age", and the paragraph following Table 4 discusses which test dominates in each "Year." I think it's ambiguous and probably contradictory. Granted, I may have a hard time looking past my bias for wanting to get the question right. :)

[Argh!]

I think that's a long shot when the paper clearly explains the method that should be used.