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question 3.9

D

dimitris13

Member
the question regarding the reserve how it is derived ?

thanks
 
It's being calculated as (annuity amount) x (annuity factor on reserving basis).

Annuity amount = (premium - initial commission/expenses) / (annuity factor on pricing basis).

PS Just in case anyone's trying to find this question in the 2019 materials, it's on Chapter 3 page 9.
 
and we equate them bc ?

thanks and happy new year.
 
Happy New Year :)

It's an equation of value : PV (premium) = PV ( benefits) + PV (expenses)

In this case : 100 = Annuity amount X (annuity factor on pricing basis) + 5

Of course, in reality, this would happen at policy outset, and the annuity amount would be known (and a data item on the admin system) when actually reserving. The point of the example though is to illustrate that the difference between pricing and reserving bases can give rise to a capital requirement for annuities.

Hope this helps
Lynn
 
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