Actuarial Outpost SOA #317
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 Short-Term Actuarial Math Old Exam C Forum

#1
05-13-2019, 08:54 AM
 joelcheung SOA Join Date: Mar 2018 Location: Singapore Studying for Exam STAM College: Singapore Management University, sophomore Posts: 9
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
05-14-2019, 01:33 AM
 therealsylvos Member CAS Join Date: Mar 2014 Posts: 17,742

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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 Originally Posted by ao fan i like laying in the tube and pretending that i'm dead.
#3
05-14-2019, 01:46 AM
 therealsylvos Member CAS Join Date: Mar 2014 Posts: 17,742

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.
__________________
Quote:
 Originally Posted by ao fan i like laying in the tube and pretending that i'm dead.
#4
05-14-2019, 02:05 AM
 joelcheung SOA Join Date: Mar 2018 Location: Singapore Studying for Exam STAM College: Singapore Management University, sophomore Posts: 9

Ahh I see, thank you for the explanation!!

 Tags exam stam, soa #317