Actuarial Outpost ASM STAM 1st edition question 7.4
 Register Blogs Wiki FAQ Calendar Search Today's Posts Mark Forums Read
 FlashChat Actuarial Discussion Preliminary Exams CAS/SOA Exams Cyberchat Around the World Suggestions

 DW SimpsonActuarial JobsVisit our site for the most up to date jobs for actuaries. Actuarial Salary SurveysProperty & Casualty, Health, Life, Pension and Non-Tradtional Jobs. Actuarial Meeting ScheduleBrowse this year's meetings and which recruiters will attend. Contact DW SimpsonHave a question? Let's talk. You'll be glad you did.

 Short-Term Actuarial Math Old Exam C Forum

#1
04-07-2019, 07:04 PM
 NoobGingrich SOA Join Date: May 2016 Location: Atlanta, GA Studying for STAM College: Emory University Favorite beer: Anything from Orpheus or Wild Heaven Posts: 17
ASM STAM 1st edition question 7.4

I'm trying to wrap my head around this but it doesnt make sense. The answer states half of premium written in 2014 is earned in 2015 and half of premium written in 2015 is earned in 2015. The question also states that premiums are payable at the beginning of the year. These cant both be true. If 12 months are earned from 1/1/15 effectivedates, 11 from 2/1, 10 from 3/1, 9 from 4/1, 8 from 5/1, 7 from 6/1, 6 from 7/1, 5 from 8/1, 4 from 9/1, 3 from 10/1, 2 from 11/1 and 1 from 12/1, that makes 78 months of premium which is not 50% of 144.
#2
04-07-2019, 07:22 PM
 Colymbosathon ecplecticos Member Join Date: Dec 2003 Posts: 6,121

Quote:
 Originally Posted by NoobGingrich I'm trying to wrap my head around this but it doesnt make sense. The answer states half of premium written in 2014 is earned in 2015 and half of premium written in 2015 is earned in 2015. The question also states that premiums are payable at the beginning of the year. These cant both be true.

It appears that you have a better grasp of the material than the problem's author.

Assuming 12-month policies and uniform writing throughout the year (and pro-rata earning of premium), 1/2 will be earned in the year of writing and half in the next year.

I guess that there is a technical difference between when the premium is paid and when the premium is written --- perhaps his insureds send the money on the first of the year and then at some random point in the future call and ask for coverage to start.
__________________
"What do you mean I don't have the prerequisites for this class? I've failed it twice before!"

"I think that probably clarifies things pretty good by itself."

"I understand health care now especially very well."
#3
04-08-2019, 03:54 PM
 Abraham Weishaus Member SOA AAA Join Date: Oct 2001 Posts: 7,239

Quote:
 Originally Posted by NoobGingrich I'm trying to wrap my head around this but it doesnt make sense. The answer states half of premium written in 2014 is earned in 2015 and half of premium written in 2015 is earned in 2015. The question also states that premiums are payable at the beginning of the year.
The question says "All policies are issued for one year, with premiums payable at the beginning of the year." The "the" before "year" indicates that it is referring to the year earlier in the sentence - the policy year. Not the calendar year.

Quote:
 These cant both be true. If 12 months are earned from 1/1/15 effectivedates, 11 from 2/1, 10 from 3/1, 9 from 4/1, 8 from 5/1, 7 from 6/1, 6 from 7/1, 5 from 8/1, 4 from 9/1, 3 from 10/1, 2 from 11/1 and 1 from 12/1, that makes 78 months of premium which is not 50% of 144.
Nothing in the question says that all policies are sold on the first day of the each month. On the contrary, the question says "Policies are sold uniformly throughout the year".
#4
04-08-2019, 05:21 PM
 Colymbosathon ecplecticos Member Join Date: Dec 2003 Posts: 6,121

Quote:
 Originally Posted by Abraham Weishaus The question says "All policies are issued for one year, with premiums payable at the beginning of the year." The "the" before "year" indicates that it is referring to the year earlier in the sentence - the policy year. Not the calendar year. [T]he question says "Policies are sold uniformly throughout the year".
Wow! Can you please provide me with a cohort of potential insureds who will pay for one-year policies on the first of the year, which take effect uniformly over the course of the year?

I'm not criticizing your question as an abstract question, but seriously, the real world isn't at all like this.
__________________
"What do you mean I don't have the prerequisites for this class? I've failed it twice before!"

"I think that probably clarifies things pretty good by itself."

"I understand health care now especially very well."
#5
04-08-2019, 05:47 PM
 Abraham Weishaus Member SOA AAA Join Date: Oct 2001 Posts: 7,239

Quote:
 Originally Posted by Colymbosathon ecplecticos Wow! Can you please provide me with a cohort of potential insureds who will pay for one-year policies on the first of the year, which take effect uniformly over the course of the year? I'm not criticizing your question as an abstract question, but seriously, the real world isn't at all like this.
Every insurance policy that I am aware of requires payment at the beginning of the insurance period (the policy year for a one-year policy), unless another periodic pattern (like quarterly, monthly) is offered. I have no idea what you're talking about, but certainly not about the real world.
#6
04-09-2019, 08:32 PM
 Colymbosathon ecplecticos Member Join Date: Dec 2003 Posts: 6,121

Quote:
 Originally Posted by Abraham Weishaus The question says "All policies are issued for one year, with premiums payable at the beginning of the year." The "the" before "year" indicates that it is referring to the year earlier in the sentence - the policy year. Not the calendar year.
This is a bizarre interpretation. Your quoted sentence is unambiguous, "premiums payable at the beginning of the year" means payable 1/1/XX. f you wanted them payable at the beginning of the policy, go ahead and spend the extra two letters and say that.
__________________
"What do you mean I don't have the prerequisites for this class? I've failed it twice before!"

"I think that probably clarifies things pretty good by itself."

"I understand health care now especially very well."