Hello everyone and happy 2016! Regarding the calculations, how were the figures for the outstanding claims reserve(c/f) and the investment return generated? Kind Regards,
In addition to that, i would appreciate it if someone explained to me how the relevant ratios (Incremental % paid for 2004 acc yr.reserve as stated in the examiners'report for September 2007 Q6) were calculated. Thank you in advance
The outstanding claims c/f = the amount at the end of the year. This is the same as the amount at the start of the following year (ie the b/f amount for the following year.) So the 2002 outstanding c/f = 2003 b/f. There are no calculations, you're given this information in the question. We're told to ignore investment return on free reserves, so we take 5% of the average technical reserves at the start and end of the year, where technical reserves = outstanding claims + UPR. For example, for 2002, technical reserve b/f = 100+200=300 and c/f=250+465= 715. So investment return =5%*(300+715)/2=25.4. I've knocked up an explanation in a spreadsheet. See the attached doc.
Please see https://www.acted.co.uk/forums/index.php?threads/accounts-exam-question.14447/#post-53935 for the calculation of the DAC. The technical reserves are the sum of Outstanding Claims Reserves (given in the question) and the UPR net of DAC.
Thank you very much, for completeness anyone looking for Tech Res number - For 2002: 100 (O/S Claim b/f) + 200 (UPR b/f) - 16 (DAC b/f) = 284. Thanks agaiun
Hi, sorry if I'm being really silly but in September 2006 Q6 part I've I can't see where the 86.8% is coming from? I understand all other parts of the solution. I have also looked at your solution Katherine but can't see details of the calculation as it is PDF. Can someone help? Thanks
The 0.868 is the sum of the rest of the row, ie 0.396+0.217+0.111+0.084+0.061 You are taking a weighted average of the relevant discount factor, eg 1.09^-0.5 by the weights shown in the row labelled "as a percentage of outstanding development, this is". So the complete formula is (0.413*(1.09^-0.5)+0.246*(1.09^-1.5)+0.137*(1.09^-2.5)+0.114*(1.09^-3.5)+0.089*(1.09^-4.5))/(0.413+0.246+0.137+0.114+0.089)=0.868
