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Recent content by mugono
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Chapter 2 , page 10
In case 1) the insured would have died within the term of the policy; so is a payment the insurer would have paid anyway. In case 2) an insured diagnosed with a terminal disease within the contract term but who died after the policy term ended would not receive a payout if they had purchased a... -
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Factors impacting bond yields
The relative change in the value of a country’s currency affects its attractiveness to internationally mobile investors. eg Sterling reduction relative to USD will affect the attractiveness of UK denominated assets. So I would expect the yield on conventional bonds (UK) to increase and its... -
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Captive Question
Hello, Setting up the captive will enable Coca Cola / FedEx to deal ‘directly’ with a reinsurer. Reinsurers enter into contracts of insurance. They are unable to transact with counter parties who do not have the requisite permissions to write insurance business. -
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Difference between freehold and leasehold
The total return on an investment = income yield plus capital growth. It’s the total return that ultimately matters. -
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Difference between freehold and leasehold
Hello, The higher initial yield on the lease would be needed to reflect the complete loss on your investment (and the right to collect the rental cash flows) once the lease comes to an end. This doesn’t occur with a freehold interest in a property, where the owner could rent out the property... -
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Is TVOG equal to the cost of guarantees mathematically?
The TVOG can be valued using option pricing techniques. CM2 may set out what you’re looking for. -
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Is TVOG equal to the cost of guarantees mathematically?
Example: a with profit contract may have a guarantee that exceeds the asset share. The difference between the guarantee and asset share is the ‘in the money’ component of the overall cost to the insurance company. The stochastic simulations will project the cash flows over the maturity of the... -
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Is TVOG equal to the cost of guarantees mathematically?
The value of an option is equal to the intrinsic value + time value. The cost of guarantees is equal to TVOG if the contract is ‘out of the money’ (ie intrinsic value = 0). -
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SCR/RM question
An internal model allows a firm to calculate the SCR using its own model, methodology, assumptions etc. All firms (IM and SF) are bound by the prescriptive nature of the risk margin calculation - a component of technical provisions. So stressing the risk margin introduces a circularity... -
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SCR/RM question
The SCR is defined as the change in basic own funds. A number (dare I say, all...) of the Standard Formula demographic [sub]modules includes the phrase "Technical Provisions without the risk margin" when describing how to go about calculating the SCR. The risk margin is not stressed. The... -
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SCR/RM question
The approach to calculating the risk margin is prescribed. My (and I suspect your colleagues) comment is in relation to where the current design of the risk margin interacts with reality :-), which would have likely considered (but not limited to) technical considerations. -
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SCR/RM question
Including the risk margin within the calculation of the SCR introduces circularity. The risk margin is the discounted value of future SCRs discounted at the risk free rate and after multiplying by the cost of capital rate (currently 6% in SII). How would you calculate a “stressed risk margin”... -
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Matching adjustment April 2017 Q1
Yes, it would not be unreasonable to expect some of the credit widening to be due to the market changing (increasing) its expectation around the level of retained risk when spreads widen. Also see the second response above. -
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Matching adjustment April 2017 Q1
Responses in turn. 1. credit spread = retained risk + illiquidity premium. The retained risk is generally equated to downgrade and default risk. 2. that is conceptually what you may expect to happen. It's certainly what I'd expect to see for internal model firms. The Fundemental Spread under the... -
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Advice for preparing for the exam
You’re over thinking and overly worrying. Write it down if you think it makes sense and move on. Don’t obviously write down none sense if you deem it so.