Darragh Kelly
Ton up Member
Hi,
I have a couple of questions regarding the results and conculsions section of the 2015 March CA2 paper.
Question1:
On page 4 of 10 of the examiners report, I don't quite follow the paragraph:
The profile suggests that the new annuitant business volumnes sold by the insurance company peaked around 15-20 years and has fallen since then.
I have been studying the "Split of Porfolio" bar chart but I can't quite follow what the statement means...
Question2:
On page 8 I just would like to ask about the paragraph below:
It is observed that the 50bps increase in improvement rate from 1.0% p.a. to 1.5% p.a. caused a drop in NPV in the order of $20m (a reduction from $40.1m to $18.5m). A further increase in the order of 50 bps (1.5% p.a. to 2.0% p.a.) in the improvement rate would be expected to cause the NPV to drop another $20m to approximately 0. Hence the derived rate of 1.91% per annum has the right order of magnitude.
This is implying a negative linear relationship exists between the impovement rate and the NPV. I'm just wondering how that they were expecting this linear relationship? Is it some basic maths I'm missing or are they assuming one exists.
Question3:
On Page 8, for the Net Cashflows graph, I follow the IFoA's sol but my commentary on the graph is as follows regarding the point in which they diverge:
From circa time 0 to time 5, the net cashflows about all equal. From about time 5 the curves diverge and continue to do so until about time 15. This is due to the compounding effect of the improvement factor – for longer time durations it becomes more significant, reducing the mortality rates more then initial rates, and thus increasing survival rates (and benefit payouts). As time passes however groups to start to completely die off (as they have reached maximum life expectancy), so this effect lessens, and the difference between the net cashflows becomes less and tends towards a constant value (curves converge), as the fixed costs become the largest component of the net cashflows.
Many thanks,
Darragh
I have a couple of questions regarding the results and conculsions section of the 2015 March CA2 paper.
Question1:
On page 4 of 10 of the examiners report, I don't quite follow the paragraph:
The profile suggests that the new annuitant business volumnes sold by the insurance company peaked around 15-20 years and has fallen since then.
I have been studying the "Split of Porfolio" bar chart but I can't quite follow what the statement means...
Question2:
On page 8 I just would like to ask about the paragraph below:
It is observed that the 50bps increase in improvement rate from 1.0% p.a. to 1.5% p.a. caused a drop in NPV in the order of $20m (a reduction from $40.1m to $18.5m). A further increase in the order of 50 bps (1.5% p.a. to 2.0% p.a.) in the improvement rate would be expected to cause the NPV to drop another $20m to approximately 0. Hence the derived rate of 1.91% per annum has the right order of magnitude.
This is implying a negative linear relationship exists between the impovement rate and the NPV. I'm just wondering how that they were expecting this linear relationship? Is it some basic maths I'm missing or are they assuming one exists.
Question3:
On Page 8, for the Net Cashflows graph, I follow the IFoA's sol but my commentary on the graph is as follows regarding the point in which they diverge:
From circa time 0 to time 5, the net cashflows about all equal. From about time 5 the curves diverge and continue to do so until about time 15. This is due to the compounding effect of the improvement factor – for longer time durations it becomes more significant, reducing the mortality rates more then initial rates, and thus increasing survival rates (and benefit payouts). As time passes however groups to start to completely die off (as they have reached maximum life expectancy), so this effect lessens, and the difference between the net cashflows becomes less and tends towards a constant value (curves converge), as the fixed costs become the largest component of the net cashflows.
Many thanks,
Darragh
