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CM1 September 2020 Paper B

S

Salma

Member
Hello

can someone please explain why in in Q1, we don't use the recursive formula given in the Recursive calculation of reserves guidelines: tV = (-CFt+1 + t+1V*Px+t)/(1+i)

Is it because the question states: "...the company calculated the gross premium reserve based on actual experience."? I.e.; it doesn't mention Prospective gross premium reserve?

If not then how do we determine which method to use to calculate gross premium reserves?

Any explanation would be much appreciated! Thank you
 
Hi,
Yes the statement about actual experience was the biggest clue that a retrospective reserve was required. This was the most straightforward approach.

However, you could also get to the correct answers using a prospective approach, solving for the TB rate that results in the reserve at time 0 being zero.
 
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