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Assignment 3 Question 4

D

dChetty

Member
Hi
In step 4 of the solution, the supervisory capital requirement is allowed for. How would you allow for supervisory capital requirement in profit testing?
Is it calculating return on capital by using the net present value of profits divided by supervisory capital? Or is the supervisory capital added to the premiums and then net present value of profits are divided by (present value of premiums+ supervisory capital requirement)? Please advise.
 
You add the supervisory capital to the reserves in the profit test.
 
Hi Robert,
If a profit margin is to be calculated I would think it would be (net present value of profits)/(present value of premiums+ capital).
Please confirm.
Thanks
 
Thanks. How would we allow for the capital layout when calculating the profit margin?
Please advise.
 
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