Sept 24 Q1

[Actuary@22]

Hi

In Q-1 ii) Please explain how do we relate or think that the question is actually asking about why it may want to improve the capital position( as can be seen from the examiner's report)
The question asks about why ABC may want to release the value of negative reserves.
While one of the reasons could be to improve the capital postion,but why is the entire answer based on that and in exam conditions how do we ensure our thought process aligns to this?

In Q-1 v) I didnt understand the below paragraph from the answer,please explain

"
Expense reserves will be too low initially
[½]
as modelled expenses will be less than expected expenses
[½]
as policy counts will be below the levels expected in 5 years"

 

[Lynn Birchall]

Hi

In Q-1 ii) Please explain how do we relate or think that the question is actually asking about why it may want to improve the capital position( as can be seen from the examiner's report)
The question asks about why ABC may want to release the value of negative reserves.
While one of the reasons could be to improve the capital postion,but why is the entire answer based on that and in exam conditions how do we ensure our thought process aligns to this?

In Q-1 v) I didnt understand the below paragraph from the answer,please explain

"
Expense reserves will be too low initially
[½]
as modelled expenses will be less than expected expenses
[½]
as policy counts will be below the levels expected in 5 years"

For (ii), the preceding sentence of the question is 'ABC’s management is considering options to release the value of the negative reserves to improve the balance sheet position'.

For (v), the proposal is, when setting the pp expense assumption, to divide the overheads by the expected (higher) number of policies in 5 years time rather than the number of policies the company has in force now. This will result in a lower pp expense assumption being used in the reserves.