How to do 8IU-2006 Q# 14b, 15b?

[vanguard_wang]

Would anyone please briefly describe how to do those 2 questions?
Many thanks!

[RichieGB]

14b

1. Calculate EGP in years 1 and 2 using EGP = (COI - excess DB) + Interest Margin
2. Calculate DAC balance in year 2 using retrospective formula and k1=47.92%
3. Now work with the SOP03-1 liability using k = PV(excess DB) / PV(Assessments), where Assessments = COI + Int. Margin

The SOP Liability retrospective formula is:
SOPLiab(t+1) = [SOPLiab(t)*(1+i)] + k*Assessment(t+1) - ExcessDB(t+1)

(The formula assumes assessments are end of year)

4. calculate the SOP Liability for all durations
5. Calculate new EGPs (let's call it EGP') for first two durations using:

EGP' = EGP - Change in SOP Liability

6. Calculate new DAC balance in year 2 using EGP' in the retrospective formula and k2=52.19%.

Is that your real name? Because that'd be awesome.

[RichieGB]

15b

I think the pre-tax profit is:

Pre-tax Profit = EGP - Change in URL + Change in DAC.

If that's the case, you're given URL(2) and DAC(2), and enough information to calculate URL(3) and DAC(3) using the retrospective formula (they give you the values needed to calculate K in each case, and they give you the EGP)

[vanguard_wang]

Hi RichieGB, Thanks for the clarification. I really get confused with those "NetCashFlow" and "Account Balance" numbers.
btw, vanguard is just my nick name, i like play soccer as "forward" :)

[phdmom]

For 15b, I don't think EGP's come into play when calculating shareholder profit. (Other than calculating DAC and URL).

I think shareholder profit = net cash flow + increase in DAC - increase in URL - increase in reserve.

I'm looking at Table 7-2 in the GAAP book.

[phdmom]

I was going to ask about 14b last night. I agree with RichieGB's process but I'm having a hard time believing the DAC balance changed by as much as it did (unless I just can't operate the calculator). I know the SOP liability will result in a slower amortization of DAC, but I got DAC(2) = 16 and DAC'(2) = 160. Can that be right?

[vanguard_wang]

Thanks! for this SPDA, use the account balance as the GAAP Reserve.

For 15b, I don't think EGP's come into play when calculating shareholder profit. (Other than calculating DAC and URL).

I think shareholder profit = net cash flow + increase in DAC - increase in URL - increase in reserve.

I'm looking at Table 7-2 in the GAAP book.

[RichieGB]

For 15b, I don't think EGP's come into play when calculating shareholder profit. (Other than calculating DAC and URL).

I think shareholder profit = net cash flow + increase in DAC - increase in URL - increase in reserve.

I'm looking at Table 7-2 in the GAAP book.

Ok, I agree with you :)

[RichieGB]

but I got DAC(2) = 16 and DAC'(2) = 160. Can that be right?


I don't remember exactly what I calculated, but my jump was as large as yours, if I recall correctly.