Hi, can anyone help me with practice questions from chapter 9 please ? Question 5 (ii) question is asking the problem arise if company decide to produce a schedule of insurance profit (in the past , only underwriting profit) by class of business : the only thing different between UW profit and insurance profit is the investment return from technical provision ; however in the answer , it mentioned about issues relating estimate reserves , rate of discount ect..all those factors should be considered when quantifying the underwriting profit ? Question 7 (i) about valuation of company using dividend model - in the answer, it suggested the dividend growth rate over the last 3 yr is 23% and last 5 years is 17% ; and then in page 36, it is then assumed the two years of dividend growth at 5% . why ? last question , in page 11 , it suggested that using discounting reserves have no impact on tax . is this because deriving profit before tax , discounting is not allowed ( unless Tax regulation state otherwise ?) thank you very much hope everyone have a nice weekend
Q5: I think the point being made is that the investment income is on the technical provisions, so anything affecting the calculation of tech reserves may also then go on to affect the calc of inv income. I agree there's considerable overlap though. Q7: Any assumption would get credit here, as long as you comment on the high recent dividends and make a judgement about their sustainability. Here, we've chosen a lower rate, but mentioned that recently they've been much higher. A bit of prudence this way is probably justifiable. Page 11: The point here is that tax payments will only change if the tax accounts change. Anything affecting the tax accounts (including discounting or not) will affect the tax payments, but changes made to other accounts (eg stat returns or published accounts) won't necessarily affect the tax accounts. Hope that helps!
