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Some numeric parts of 403-2 questions

H

herewegoagain

Member
Hi

I am a little confused with a couple of numeric questions, and was wondering if anyone can help me out with this.

403-2 September 2002, question 1 part (ii)

This question requires setting up of the technical account:

1. The question states that the dividend is calculated such that the solvency margin is kept constant. I've now had many unsuccessful attempts at reconciling the dividend payments, but all failed misreably. Does anyone know how the dividend payments are calculated?

2. Also relating to the same part, when the solution calculates the increase in free assets and technical funds, it assumes they increase by 10%. How is this, if the question states that the investment returns earn 5% interest?


403-2 April 2004, question 2 part (iv)

I am not sure how the rate change factor of 1.059 is being calculated:

1. Firstly, the arithmetic in the solution does not come to 1.059 - I calculate it as 1.027.

2. Secondly, I don't understand why when calculating the rate change the solution says "...divided by (1/2 + 1.05*3/8 + 1.05*1.06*1/8). I can understand the numerator of the rate change, which I think is the 2004 rate, but what exactly is this denominator calculating?

Thanks
 
herewegoagain said:
403-2 April 2004, question 2 part (iv)

I am not sure how the rate change factor of 1.059 is being calculated:

1. Firstly, the arithmetic in the solution does not come to 1.059 - I calculate it as 1.027.

2. Secondly, I don't understand why when calculating the rate change the solution says "...divided by (1/2 + 1.05*3/8 + 1.05*1.06*1/8). I can understand the numerator of the rate change, which I think is the 2004 rate, but what exactly is this denominator calculating?

Thanks
Click to expand...

Always helps to look at prior posts;) :

http://www.acted.co.uk/forums/showthread.php?p=4189#post4189
 
herewegoagain said:
403-2 September 2002, question 1 part (ii)

1. The question states that the dividend is calculated such that the solvency margin is kept constant. I've now had many unsuccessful attempts at reconciling the dividend payments, but all failed misreably. Does anyone know how the dividend payments are calculated?

2. Also relating to the same part, when the solution calculates the increase in free assets and technical funds, it assumes they increase by 10%. How is this, if the question states that the investment returns earn 5% interest?
Click to expand...

Solvency margin expressed as % of WP is constant, and dividend is chosen to make this so. Solvency margin in year 2002 is 360/400, in 2003 is 396/440 etc.

Free assets at the start of one year increase by the retained profit from the previous 12 months. So 396=360+36. Investment returns are 5%, yes, but reserves' increases depend on more than just investment returns - it includes all the other cashflows too.
 
Hi Ian, still bit lost on this:

I get that free reserves In 03= free reserves at end 02+ retained profit, but to get the retained profit we needed the II on free reserves (for which we needed to apply 5% to the FR)- so im not sure how the values were derived. Only other thing I notice is 10% was applied on the FR which then allowed you to calculate II on FR and hence retained profit? or am I missing something?
 
Not exactly sure which figure you're questionning and haven't looked at the specifics - but I did manage to find the attached which hopefully helps. let me know if you need to know how any individual figs are calculated (as the forums don't let me upload the spreadsheet).
 

Attachments

  • 403s02-1-2.pdf
    98.4 KB · Views: 18
Hi Ian,

Yes I am still lost given the pdf you attached. Queries relate to :
  • how are the technical reserves calculated for 2003 at the start and end and so for 2004?
  • I get that the free reserves at the start of 2003 is from the balance sheet at 31/12/02--- but how is the end free reserves calculated? And to get the retained profit would it just be the difference between the two rather than going through the whole account (if that makes sense)?
  • The values also seem to increase by 10% each year? Is there a reason for this?
 
Tech reserves for 2003 = 640 =1.25*WP for 2002+UPR b/f (net of DAC) Uses 8th bullet point in the question.
End free reserves = start free reserves for next year = 396 = free reserves/written prem for 2002 * written premium for 2003. See post further up this page.
For the 10% increase, that's because the premium is increasing by 10% as per 3rd bullet point.
 
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