Wade problem

steve.manilov@milliman.com
Mon, 18 May 1998 12:33:58 -0800

There was a Wade problem on the exam (can't lookup the number at the moment=
)=20=
where you were to evaluate a new strategy using the Contribution Method=2E=20=
The company was selling 1,000 policies and had such and such losses and=20=
expenses=2E The new strategy proposed cutting rates by 5% and sell 300 mor=
e=20=
policies=2E Expenses don't change=2E The question was if the new strategy=
is=20=
better=2E=20=

The way the problem was worded on the exam mentioned nothing about the loss=
es=2E =20=
If we assume losses stay the same then after a simple calculation we see=20=
the=20=
new strategy is better=2E If, on the other hand, losses increase proportio=
nately=20=
(which makes sense since the company would have more exposures of the same=20=
quality) then the new strategy is not better=2E How did you solve this pro=
blem? =20=
Do you think the problem was ambiguous since they mentioned nothing about t=
he=20=
losses?

Steve

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