I am working problem #40 from the 1991 exam. It's from the Gillam/Snader paper
on deductible and excess pricing.
The problem states that the ALAE, ULAE, and investment income all vary as a
percent of losses (not losses and ALAE). Yet, the solution in the Murdza
manual applies the percentages for these items to E*P, which is the expected
losses INCLUDING the ALAE.
It seems like this is incorrect, and that these percentages should be applied
to the quantity (E-a)P instead (losses excluding ALAE).
I was thinking that maybe the study manual stated the problem incorrectly and
that these items were a percentage of losses and ALAE, but then that would
make ALAE a percentage of losses including ALAE, which doesn't make sense.
Has anyone worked this problem? Any thoughts?