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Short-Term Actuarial Math Old Exam C Forum

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Old 05-13-2019, 08:54 AM
joelcheung joelcheung is offline
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Default 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!
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Old 05-14-2019, 01:33 AM
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therealsylvos therealsylvos is offline
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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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Old 05-14-2019, 01:46 AM
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therealsylvos therealsylvos is offline
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We don't care about the duration of the rate change because we don't care about bringing CY2 to CY3s level, we want to bring CY2 to the current rate level.
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Old 05-14-2019, 02:05 AM
joelcheung joelcheung is offline
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Ahh I see, thank you for the explanation!!
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