. As usage given default goes up, adjusted exposure increases, thus ‘usage given default decreases’ is incorrect. If expected default frequency decreases UL will decrease. ‘Adjusted exposure increases but default frequency decreases’ is ambiguous. ‘Variance of default frequencies increases’ will increase UL as the last term in the square root will increase.
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Unexpected loss will increase under which of the following circumstances? A. Expected default frequency decreases. B. Usage given default decreases. C. Adjusted exposure increases but default frequency decreases. D. Variance of default frequencies increases. |