difference in onerous Q19 vs Q25
Q19 gives you lots of reasons that just because the policies are performing worse than you expected doesnt automatically make them onerous (one example shows COR still being < 100 but higher than the planned COR) but Q25 tells you that the actual LR is higher than the expected LR therefore its onerous. Why are the outcomes different? how do we know that expensive ratio isnt lets say 7% bringing COR to 95%, thats still profitable - aka not onerous is what I would have thought
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Apologies for the delay in answering. We are looking into your question.
In Q19, that is very specific because onerosity means that you are loss-making. Having an actual COR > Planned COR does not necessarily mean you are loss-making, you could just be making less ( Note they do not say by how much you are worse than the planned COR)
For Q25, it is pretty obvious that they want you to state it is onerous. And I get that your expense ratio can vary and you could still be non-onerous if your actual loss ratio is maybe +5% vs expected. however, if you are 19% above expectations you are 100% onerous. Also, there is no line of business that can be profitable at a 89% loss ratio
I totally agree that LR 89% is ridiculous and theres no way it could be profitable irl, I'm still really struggling on how to decide whether or not it's onerous, any guidance would be greatly appreciated. Are you basically looking for obvious signs of unprofitability going forward?
It really boils down to experience and actually working on loss components and knowing when to disclose onerosity. This is probably not what you want to hear. That said, in the exam just explain more. For example, if you think having a higher COR than planned means it is onerous, why so? Is it because you are assuming that the COR is > 100? If so, then state it out and you'll probably get marks for that. Similarly, if you think the policy is non-onerous with an 89% LR, then justify it. Maybe you can say you believe that while the policy has a much higher LR than expected, because you don't think expenses are that high it may have worse than expected experience but is still barely profitable and not onerous