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A minor follow-up to the above info about our products following the IFoA's announcement about the April exams: Course Notes We do not plan to...

Hi Definitely worth looking at how the IFoA explain the meaning of each of these here:...

Hi Danny Highly geared companies are going to be paying high amounts of interest each year to service their debts. If interest rates increase,...

There are 2 assumption bases (ie full set of mortality, interest rate, expenses assumptions etc). These are 1 and 2/3 in your post, ie the...

2 and 3 are the same To maybe help see this, we can consider profit formula as being broadly: profit for a time period = P + I - E - C - [...

The current tax system in the question potentially tips the choice between equities / property / bonds towards equities / property because of the...

The company only receives data about the pension scheme members. However, the annuities the company has to pay all have dependants' benefits...

The alternative to a discounted cashflow approach would be to use a formula, eg to set premiums such that EPV (premiums) = EPV (benefits +...

Hi For (ii), it's not saying he insurer is not impacted by the market downfall. The equity market fall in the question would have impacted the...

Hi - remember we're thinking about a fund with an 'I-E' taxation basis here. Exactly what is included in I would depend on the particular...

Hi If we use the info in the bullet points to adjust the values of Rough's assets, then the realisable value of the assets is: Non-current assets...

Yes, that sounds about right to me

Hi Rachael I agree that's the safest assumption :) I'd suspect it's likely to be worth paying particular attention to the 'specific context of...

Hi I don't think the answer is being prescriptive, ie not saying will definitely consider amounts rather than lives. It's just raising an issue...

Thanks MindFull - sounds good to me. The basic idea behind unlocking the CSM if we change certain assumptions is that, without doing this, a...

Hi - I wonder whether the points just needed that little bit more, to specifically link them to the policyholder's view. So for example not just...

Essentially yes - the expected return on equity will be improved by more cheap (and tax-efficient) debt.

Hi I wonder whether this is partly due to the age of the exam question. I don't know exactly what the Core Reading said about this point in 2000!...

Hi Asset shares depend on actual past experience. They are therefore unpredictable and potentially volatile, eg asset shares can drop sharply if...

A shorter reply for this one - it means no restrictions at all :)

Hi Rachael I don't this is equivalent. The 2nd condition relates to the idea that if we're holding negative non-unit reserves we can view these...

Hi Rachael 1) Other possible product design loophole examples could be variations on charges not exactly matching expenses by timing and/or...

Because retained earnings belong to shareholders in the same way as any other share capital that shareholders may have invested in the business

The IFoA define 'discuss' as 'write about it in some detail, taking into account different issues or points of view'. Generally in CB1 the marks...

Hi. I'd recommend bullet points rather than paragraphs. [You'll see in the Examiner's Reports that typically in CB1, 1 mark is about 1 sentence.]

Hi again. For the first question, I'm not sure what you're query is? It might help to make up some numbers for the current assets and current...

2. Picking up on the second question first: What you've done sounds relevant to me - the Examiners' Report also describes how the ROCE and current...

Hi For the company to have a high return on capital employed, despite a low profit margin (ie low profit per unit of sales), it must be generating...

Tax is due in respect of the past year, it is just that the company did not actually pay that tax during the year itself. So, it is a current...

Hi That's right. This question is unusual in that it states that tall depreciation has been charged for the year and so is recorded in the...

Maximising shareholder wealth doesn't necessarily align with the directors' interests. For example, the directors' interests may be to secure the...

Hi Komal It's worth considering separately what happens for annuities that are already in force and what happens for annuity pricing (ie the...

Hi Alexa We need to allow for survivorship (eg the 0.99 factors) when we're looking beyond the first year. The answer to 3(i) does do this too...

Hi Matt Ah, ok - I'm with you now :) The v^1/2 factor in each RP is because the RP is being calculated as the PV of the expected claim cost (so...

Hi Matt Can I just check we're looking at the same thing here - ASET solution, top of page 10 of that sitting's solutions, the formula for EPV...

Hi Prior to the change, initial charge is 2.5%, both offer and bid prices are rounded up to 3dp. Proposal is to increase initial charge to 3%,...

Hi Matt For the WP risk premium, the risk premiums would be determined annually (or even monthly). So, I think a charge of q_x * (sum assured...

Hi Matthew For the solvency ratio part, as long as we have the total assets of the company correct, it doesn't matter which of the two funds...

Hi Nikita In the example, we're talking about conventional without-profits business with backing assets are fixed interest bonds. If bond yields...

Hi both Yes, the solution in Chapter 1 is just trying to say that if the cost of capital is NOT factored into asset share, then the difference...

Hi Nico - yes, you're correct. Part (ii) should ask for the SV at 31 December 2021.

Hi It might help to think of them in groups: (1) the first few points in the examiners' report are about the fact that a WP policy will pay...

Hi Good news: Part (iii) of this question (the North American method calculation) is no longer examinable under the current syllabus. PS for...

Hi - it's possible because of discounting. The bonus amount is only expected to be paid at some point in the future (perhaps at maturity in 25...

A simple short answer to this one: Yes :)

Thanks Ethan! For what it's worth, I'd particularly highlight number 4 on your list as being the major reason :)

Last one! Note the comment from the examiners : 'Marks were also given where candidates made alternative sensible use of the premium rates/sums...

Short answer: because the premium increase only applies to future premiums (not all the past premiums the policyholder has already paid). Longer...

It's the latter. This is the right way round. You are right though that it is circular (need the balance sheet to calculate the surplus from...

Hi Kiran I'll split replies over several posts ... It's up to an individual company if and how they choose to implement this principle of being...

Hi We use both really! Broadly, the actual experience vs pricing basis will determine the amount of profit that is earned over the life of a...

I don't think you have too much to worry about with your understanding of either Section 1.9 or 1.3. In Section 1.9, the use of a policy fee...

Hi Taking the points about Practice Question 16.3 first ... Various possible reasons I think - for example, the profit testing may have been...

A note for other readers of this thread : this Q does not appear in the 2022 version of the course notes. Hi A couple of tweaks to the steps in...

Hi both For what it's worth, I agree with you here: I think we would expect lower actual expenses and higher actual investment returns. Lynn

Hi Nicholas 1) I'm not sure I'd go quite that far in terms of generalising. So, I'd say yes in the sense that changing the annual expenses to...

Hi Ben 2) Starting with this one first: 'With respect to first question above, isn't reserve should be net cashflow*probability of surviving as...

To (hopefully!) reassure : your understanding of how the company could (potentially with more sophistication and accuracy) allow for these in its...

Hi - good question! Yes, premiums dependent on age allow for the increase in standard mortality at older ages. However the risk that is increased...

Hi Jack (1) Remember that in the asset share formula you mention, the i is not referring to interest rates. For the asset share accumulation i...

Hi Kamal Gross premium valuation and net premium valuations are defined in the Glossary (Chapter 32). They differ in the premiums they use in...

Hi If it's an reassurance, I don't think you're missing anything in the question that 'suggests' doing this. Perhaps more a case of knowing the...

Hi Ekta (1) April 2010 Question 6 part i [Firstly a comment: the calculation of option premiums using the conventional method and the North...

Hi Good question! Your thought that the absence of a surrender penalty would be expected to increase surrenders is correct. Indeed the...

Hi My reading of the question is that underwriting would still be carried out (as is normal for term assurance) and that the 'premium rates vary...

We can use the annual capital charge to work out the effect that investing in the machine will have on the company's profits in each of the next...

Hi George Good question! Exactly what's needed in the answer would depend on the detail of how a particular question was phrased ... ... but in...

Hi George To me that seems in line with the handbook, provided full working is shown as you say. Full disclosure though: IFoA (rather than...

Hi Hopefully familiarity helps with the efficiency of producing the financial statements. Most people find that they naturally get quicker at...

Hi George I think you might be using an older version of the materials? The 2022 version of that question is worded as : 'Describe the impact of...

Hi Han 1. We add the depreciation back to the profit because it is not an actual cashflow, and it is the cashflows we want to discount in an NPV...

Glad that's sorted easily :) It's because in NPV we want to discount at a rate that reflects the riskiness of the project. The 6% cost of the...

Hi Josh It should do! Just need to make sure you do the discounting at the required rate of return (8%) (not the 6% cost of the loan). Hope that...

Hi Han Good question - the cost of equity for companies is not as explicit as the cost of debt (where they have a liability to make the interest...

If USD strengthens, then more AUD is required to buy 1 USD on the open market. But by entering into the futures contract, the Australian comapny...

Hi Han! Chapter 1, Section 2.3 (Contractual theory) is the best reference for this I think. Hopefully Chapter 1, Section 4.1 helps with this...

On the original amortisation basis (from initial £400m, over 10 years), amortisation would be £40m each year. So, after 1 year, at year ending 31...

Hi Just checking - I think you're referring to April 2014 Q19 here? This question part is rather unusual. The expected share price has been...

Hi Please make sure you've read the IFoA's Examination Handbook for the September 2021 exams...

Hi, yes - this sounds spot on to me.

Hi Good question - the (lack of!) depreciation info for the year for plant and equipment is certainly an unusual feature. Usually, depreciation...

Hello Yes, a helpful way to think about PVIF for WP is in terms of PV(shareholder profits), where shareholders get 1/9 the cost of bonus (hence...

I'll try a simplified example and see if it helps (fingers crossed!)... Imagine there's a payment of 121 to be paid in 2 years' time. Let's...

Hi If I've understood your post correctly, then your understanding of this comparison seems sound to me :-) At the end of page 5, I'm reading...

No. Remember that the tax is worked out by looking at all different policies in the same tax fund in aggregate, we don't 'separate out' the term...

Yes in broad principle to your relationship between the IFRS17 discount rate and the Solvency II discount rate provided your '(and anything else')...

Hi 1. Yes, that's it :-) 2. I think it's a rather complex mechanism for this one! Comparing: a company that is XSI, who when pricing term...

Hi Keep in mind that the question is asking about 3 different possible ways in which term assurance business might be taxed. So, they are...

Hi Yes, market observable data would include actual asset yields on assets, including bonds. It would also include bond yield curves. Market...

Yes, that's it exactly :)

Hi, just one tweak to that I think - there's no mention of the expense basis changing, so still want to use 30 (rather than 25) as the expenses....

Hi Yes, the solution to part (iv) is working from expected to actual. If we wanted to work from actual to expected, we would want to start with...

Hi Corey Yes, looks like the £80k is 3 months of the 8% interest on the £4m loan. I'd say the 3 months of interest in respect of Oct/Nov/Dec...

Hi Lauren Good question. I'd hope the approach might be indicated by the information given in the question - in particular the information given...

Hi You're right that the depreciation should be included in the profit or loss statement. Usually, the depreciation figures given in the trial...

Hi Lauren No, the order of the individual items (cash, inventory ...) doesn't matter, just the general structure of the sections (assets - non-...

There are a number of definitions of return on capital employed, but they are all variations on: return (ie profit) / capital If we think how...

Hi. Yes, I'd say long accounts construction questions such as this are still examinable. Thanks Lynn