Nathan was hired as an actuary with ABC Insurance. Nathan was asked to

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

ANSWER

Answer: A