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Exam Paper April 2006

L

Leala

Member
Q4 part 1.
Regarding the premium index: Why take off the 5% is 2005? If it's 5% less in 2006, would it not be this much higher in 2005?

Q5 part 2.
the investment return figures is the average of reserves and definitely not profit(as mentioned in the markers comments). How is the reserve figures found? I would have calculated the investment return on the u/w profit, as I thought this would be the technical reserves for the period? - we just take investment return on the reserves figures do we, so the amounts in the accounts for outstanding claims, and not any premiums we may have in the accounts? I don’t know why the reserves figure was found in this question.

Thanks a lot
Leala
 
Q4 part 1:

You're putting premiums in 2006 terms. So if rates went down between 2005 and 2006, then on an 'as if 2006' basis, the premium in 2005 will decrease.

Q5 part 2:

There are many ways of calculating investment return. We describe these approaches in much more detail in ASET, showing alternative answers and how to derive them. Reserves are not the same as profit. Profit is the sum of cashflows over the year whereas reserves are a snapshot of everything you owe on a particular day. Investment return is earned on funds you hold, so relate to reserves, not profit.

Given your queries on this, I'd strongly recommend you buy ASET to find more explanation and improve your understanding beyond what's shown in the examiners' report.
 
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