Nathan was hired as an actuary with ABC Insurance.Nathan was asked to calculate the annual premium for a new product and to explain his calculations to ABC's director of ratemaking.Nathan calculated the pure premium and presented this value as the final premium.After Nathan's presentation,the director of ratemaking said,"You left out something very important.If we sell coverage at the pure premium rate,we'll be out of business soon." What did Nathan overlook in his calculations?
A)loading for expenses
B)the underwriting cycle
C)seasonality of claims
D)investment income

Question

Quizplus · Accepted Answer

Nathan did not consider loading for expenses, which includes items such as commissions, sales and advertising expenses, overhead expenses, and taxes. Without adding these expenses to the pure premium, the company will not be able to cover its costs and will eventually go out of business.

Nathan Was Hired as an Actuary with ABC Insurance