April 2008

Discussion in 'SA2' started by Zebedee, Apr 14, 2008.

  1. Zebedee

    Zebedee Member

    Rest of the planet should be done by now I reckon. Any thoughts on this one then folks? I really struggled for time. Did the questions in reverse order cos Q3(i) looked easy enough. Problem was knowing where to stop with that one as only 12 marks - I wasted time writing about 20 marks worth. Playin catchup then... got nowhere with the EEV - totally shocked to see a numerical Qn and panicked. Q1 probably wasn't as bad as it looked tbh but at 45 marks I prob should've left more than 45 mins to tackle it. Ah well, can't win 'em all.
     
  2. 4EverStudent

    4EverStudent Member

    Q1 & Q3 were reasonably straightforward and I did these first of all.

    Q2 really threw me and I think this will be the one that decides if you pass or fail! At least, I got to use my new calculator ...........
     
  3. WHS

    WHS Member

    Athough I agree that Q1 & Q3 were reasonbly straight forward I found that it was difficult to write a reasonable amount in a nicely structured format. I struggled with this while I was doing pass paper practice.

    I was completely floored by the EEV question as I couldn't figure out how to apply the principles to do the required calculations.

    I am hoping that the pass mark will be really really low. For now I just plan to forget about the exam and PARTY!!
     
  4. pun23

    pun23 Member

    I really want to know if somebody did well on Q2 parts ii and iv. If yes, how much time did it take them and did the other questions suffer because of this? I spent some time doing useless stuff in these two parts and due to this last 2 parts of Q3 suffered. Feel really bad about a numerical spoiling a well prepared attempt :(
     
  5. Zebedee

    Zebedee Member

    On that note, does anyone want to go out on a limb and say how they believe the EEV should have been calculated in part (ii)? The answers for (iv) will presumably depend on the order and direction of analysis - threw me a bit that they didn't indicate how we should do it.
     
  6. tomas

    tomas Member

    I see that Q2 was a problem for almost every one.
    But for me it is a traditional case when we have a simplified example in a book to learn EV and a complex exercise on the exam when there are only 20 min to do the whole analysis of movement.
    The result is as this.

    Back to the question.
    In part ii) it was required to calculate the surplus arising.
    But there was given the EV value at the beginning of year and at the end so the surplus arising should be the difference between those two values.
    when you measure the firm surplus using EV then isn't it correct?
    That was my thought but given the 6 points for that i know that it is wrong.

    On the other hand surplus arising is the difference between increase in value of assets and increase in value of liabilities.

    Assets grwoth was 1202 (assets are equal to liabilities) * 5% +
    cashflow from the year which is
    102 000 *1.05- 10 000 000 * 1% * 1.024 - 102 000 * 6% * 1.05
    this gives
    -1666 thousands (we pay nothing on surrenders)


    Liabilities gwroth is
    940-1202 = - 262

    so the surplus arising is -1666 - (-262) = -1404 ?

    What do you think about this ?
     
  7. 4EverStudent

    4EverStudent Member

    I did something similar.

    A couple of points though:

    Should the new business contribution (I think it was 100) be added to this?

    Shouldn't you allow for 'negative growth' on the liabilities during the year, i.e. deduct 0.05*940?

    But to be honest, I hardly bothered to revise this section of the notes. I concentrated more on realistic balance sheets and ICA which seemed to be recent 'hot' topics!
     
  8. pun23

    pun23 Member

    I think NB should be added to the calculations but not sure about 'negative growth' on the liabilities as these are calculated at the end of year instead of continously.
    Moreover, I don't that the answers for (iv) will presumably depend on the order and direction of analysis - because the method of analysis of change EEV is well defined on the direction that this needs to be done.
    Does anybody has different opinions?
     
  9. tomas

    tomas Member


    :) ha, the army is usually the best prepared to win the previous battle ! ;)

    With liabilities it is easier as you are given the values at the end and beginning so I think you need just to calculate the difference

    With assets you need to calculate the cashflows

    NB probably is the reason for increase in expenses from 4% to 6% so it should be included so far as well in premium and liabilities

    If not then it all does not make sens as we are given only the EV contribution of NB which is the total discounted profit from future years and not from that particular year


    pun23generaly in my opinion you will get different results if
    a) you start from actuals to expected or from expected values to actuals
    b) you analyse first the change in expenses and then in withdrawals or other way around

    but in this expample there might be no difference as expenses and withdrawals are recognized at different points of year (not sure about it)

    there is no one way of anaysis (see chapter 21) each company can have different order of changes in assumptions
    in fact if your change in EV is 100 then you can allocate 55 to change in lapse rates and 45 to change in expenses or it can be 54 to change in lapse rates and 46 in expenses if you do it in reverse order
    it is important to be consistent from year to year
     
  10. tomas

    tomas Member

    Q2 iv calculation I would start from calculation of expected VIF at the end of the year (VIF(1)
    for me it is

    VIF(0) = VIF(1)/ (1+i) + P - D/(1+i)^(0.5) - E - (V1-V0)

    VIF(0), P, D, E are given
    Problem is with calculating the expected increase in reserve
    Pehaps like this
    V1 = 940 /0.85*0.9 - 1202
    but Im not sure about it
    How to allow for withdrawals in the clculation of the reserve ?
     

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