If in a qus., we are asked to calculate profit/loss separately for mortality, interest and expense. We will compare both sides of the recursive formula and if LHS>RHS there will be a profit. That will be the Total Profit. Now, for mortality profit we can calculate it by using EDS - ADS. I have seen two qus. ,in which either interest profit is zero or the expense profit is zero, so in this case we can find expense / interest profit(whichever is non-zero) by subtracting mortality profit from the total profit. But if none of them is zero i.e. the actual experience for both interest and expense turns out to be different from the expected one, how to calculate interest profit and expense profit separately ? Anyone pls help asap. Thanks
I don't think that it would be possible to find the interest or expense profit without being given some more information.
Thank you for your reply. But please clarify this also. If it is given that the expected rate of interest is 4% and the actual rate of interest turned out as 5% and for expenses, we assumed that it would be 45 per annum payable advance but in actual, the expense occured is 40 per annum. How to deal with it ? What I am thinking is, we can calculate the interest profit(No idea about expense profit) like this: (tV+P-e)×0.04 expected interest (tV+P-e)×0.05 actual interest The difference between two will give the interest profit. And then we calculate the mortality profit, by subtracting interest profit and mortality profit from the total profit, we can get the expense profit. Can we do this ? If not, then how to do it in this particular case.
hi Bharti. You are now performing an analysis of surplus calculation This is definitely not on the CT5 syllabus as I know it. The calculations are not even on the ST2 syllabus! For other students reading this the main thing in CT5 is that you can calculate mortality profit, and total profit. What you call expense profit is all the profit during the year that is neither interest nor mortality profit. But this may not be just "expense profit", as there can be other profit sources, in particular profit arising due to differences between the reserving basis and the premium basis, and between the reserving basis and the expected assumptions But I don't think you will ever be required to apply this depth of understanding for profit questions in CT5. Robert
