Question

What are some limitations of the formula method for determining premiums?

a.

The formulae are flexible and adaptable to various economic changes.

b.

Formulae take into account all possible risks while calculating premiums.

c.

Formulae are not constant and can be adjusted over time.

d.

Formulae are very rigid and do not consider other risks, and they remain constant for many years without considering economic changes.

Posted under IC 92 Actuarial Aspects of Product Development

Answer: (d).Formulae are very rigid and do not consider other risks, and they remain constant for many years without considering economic changes. Explanation:Some limitations of the formula method for determining premiums include that the formulae are very rigid and do not consider other risks, and they remain constant for many years without considering economic changes.

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Q. What are some limitations of the formula method for determining premiums?
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