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#1




SOA #317
In the newer edition of the SOA Exam STAM sample questions, one of the few newly added question is #317.
I understand that the earned premium of CY2 is 1.092375P but when finding the factor needed in CY2, why did the solution just divide 1.10638 (which is the multiple of 1.177 * 0.94) with 1.092375? This method does not account for the duration that the rate changes in CY3. I computed the area for the bottom right triangle in CY3 to be 1/9 and I calculated the earned premium for CY3 to be: (8/9)* 1.177P + (1/9)* 1.10638 = 1.16915P. But when I divide this value by 1.092375, the factor that I found is 1.07, which is none of the answers. Thank you! 
#2




You don't need to compute the bottom right triangle. You are told to bring the CY2 premium to the 12/31 CY3 level. The 12/31 CY3 rate level is simply 1.07*1.1*.94=1.10638.
So since the average rate level for CY2 is 1.0924, and the rate level at 12/31 CY3 is 1.10638, we have 1.0924 * OLF =1.10638. 
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exam stam, soa #317 
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