April 2018 - Paper 1

[Nandan]

Hi,

With respect to Q3 iii) - at first, I thought that infrastructure assets/projects were a part of the project management section of CA1 which isn't there in CP1 now. Apparently that isn't the case. So, I am really confused as to how one can proceed thinking about points for such a question. I could not come up with a proper structure for this answer and not many points either, apart from the general characteristics of infrastructure assets. But what the examiner's report says seems to be quite different! Can anyone please help me in trying to understand how they may have come up with such an answer?

Also, with respect to Q6 ii) - Looking at the question, the things that come to mind are the different sources of data which can be used. However, not sure how the answer in the report is being structured. For 14 marks, I know that writing about the sources only won't help! But I am not entirely sure how to go about the thinking and come up with something close to how the answer is structured in the report.

I also had a question related to interest rate swaps, but I found a couple of threads really useful - thanks for those clarifications!

Thanks a lot in advance!

 

[Lindsay Smitherman]

Hi: in relation to Q3, this is about choosing to hold infrastructure assets as an investment, not about 'project management' of their construction. So you need to think in terms of the characteristics of assets (SYSTEM T) and (because you are being asked about market price levels) the impact of supply and demand - just as you would for any other asset type.

Infrastructure investment could involve investing directly in property (eg a hospital) or financing the projects through debt or equity holdings. Therefore a good way to tackle the question is to start by considering the characteristics of these types and, as much as possible, tailor this to the particular features of infrastructure investment. For example, there might be considerably higher government intervention.

 

[Lindsay Smitherman]

Re Q6: you don't have to structure your answer the same way as they do in the ER. Other structures are fine, as long as they are hitting the right ideas. (And remember that you don't have to cover anywhere near all of the points in the ER to score well.)

It's worth recognising here that we have a new disease, so there will be issues in terms of getting useful data on what its impact might be on mortality. And we are repricing an existing product, so we have to do two things: (a) get the baseline mortality updated (to reflect any changes in experience since we last priced the product) and (b) work out how to allow for the new disease.

We then need to think about what data sources could be used for each of these - and because we are asked to 'discuss' the data (not just to describe it) we can also think about any issues that might arise.

For the baseline mortality, starting with company own data sounds sensible - particularly given the description of the co as the market leader. So we can discuss the use of this data, including its credibility and needing to allow for any expected future trends.

For the additional mortality arising from the new disease, we need to think about what the possible external sources are and then can discuss what the issues might arise with using those - particularly in relation to relevance and certainty.

Hope that helps to get you started.

 

[Nandan]

Re Q6: you don't have to structure your answer the same way as they do in the ER. Other structures are fine, as long as they are hitting the right ideas. (And remember that you don't have to cover anywhere near all of the points in the ER to score well.)

It's worth recognising here that we have a new disease, so there will be issues in terms of getting useful data on what its impact might be on mortality. And we are repricing an existing product, so we have to do two things: (a) get the baseline mortality updated (to reflect any changes in experience since we last priced the product) and (b) work out how to allow for the new disease.

We then need to think about what data sources could be used for each of these - and because we are asked to 'discuss' the data (not just to describe it) we can also think about any issues that might arise.

For the baseline mortality, starting with company own data sounds sensible - particularly given the description of the co as the market leader. So we can discuss the use of this data, including its credibility and needing to allow for any expected future trends.

For the additional mortality arising from the new disease, we need to think about what the possible external sources are and then can discuss what the issues might arise with using those - particularly in relation to relevance and certainty.

Hope that helps to get you started.

Hey! This helps a lot. Thanks for walking me through the thought process behind the structure!