Ian 1)Sept 04 Paper2 qu 1 -I've taken a look at the explanation you gave for the inflation periods of claims for this question but still don't follow, sorry. For AY 2000 and policies written 1 march 00 - what period are we looking at for the average claim date - from march 00 to end dec or from march 00 to march 01. Similar for the sept polices - i dont see where the 1 oct come from for these. Also are we just ignoring the fact that they are 3yr polices (which we use to calc the 1/12/06 part). Would you also be able to give an example of another year where prior business is involved. 2)What is the difference between port transfer/commutation/part 7 transfer/schemes of arrangement? 3)september 1999, paper 1 Q1b. the calculation of the premium rate. Is it assuming here that the £1m expected losses have already been inflated to future payment date (as we do in the prem rating steps)? otherwise we would be using a real rate of return? 4)April 2000, paper 2 qu 2. What is meant by goodwill consideration? Is this just another valuation of a company question and they are using a discounted cash flow method and projecting all possible casflows? is this then the alternative to using a discounted div model or discussion or ratios? Thanks
1) For pols written 1/3/00, claims in 2000 will appear in months march-dec inclusive. For pols written 1/9/00, claims in 2000 will appear in months sept-dec inclusive. So 1 lot of claims in each of mar-aug, and 2 lots of claims in each of sept-dec. Depending on how you do your averaging (they've used the median), this makes average claim half-way thru sept 2000. So inflate from mid-sept 2000 to 1/12/06, ie 6 years 2.5 months. Let's do AY 2001 too. Half of the claims arising in 2001 will be from business you wrote in 2000, and so will be fully exposed (so yes, you're allowing for the fact that the cover lasts 3 years). So you'd inflate this half of the claims from mid-2001 to 1/12/06, ie 5 years 5 months. The other half of the claims arising in 2001 will be from business you write in 2001, and you do the same calculation as for 2000, to get an inflation period of 5 years 2.5 months. So the average inflation is then 5 years 3.75 months. 2) These are not covered in the Notes, but were examined in the most recent exam. I've put more explanations in ASET. Schemes of arrangement were covered in last year's GIRO conference. Google on the rest - as there's loads of material on them! 3) Yes 4) Goodwill is generally taken to mean the present value of profits from future new business. Yes, there are many ways of valuing a company. Discounted cashflows/dividends, or analysing-accounting-ratios seem to be the ways that get put into the solutions. A good paper to read up about this is the one called Insurance Mergers and Acquisitions, by Simpson and Wells.
For (1), to be absolutely correct, shouldn't we weight the dates according to the exposure? e.g. For AY 2001 we shouldn't be using 1/2 weighting for policies written in UY 2000. In other words, since we don't have the written exposure for each year, shouldn't we state the assumption that we have the same written exposure in each year? For (2), isn't it misleading that the question says not to say anything about an Adverse development cover (as if it would be an acceptable solution) but the solution says that they would only accept solutions that would remove the legal liability? .
(1) The question states that historically you have the same number of vehicles added each year. (2) I guess if you're reading the question that closely, then you're right, although I doubt many would have spotted that!
1) Yes! 2) Well...following the usual examiner's comment that all information in the question is there for a reason, then what would that reason be in this case? It could only be there to guide you towards the right path...
