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Anonymous
09-24-2001, 09:36 AM
In Table 4.3.4a of the "Income Based Reserves" SN, I'm stuck on circular logic in deriving the Profit Margin. Profit Margin = -BEL(0)/PVInvIncome(0)=17%, but how do you get PVInvIncome(0) when you don't know the Policy Liab, which depends on PVFutureProfits, which depends on Profit Margin, which I'm trying to find. Help!

Moe
09-24-2001, 10:59 AM
Hi, Mark!

I wrote 8I last year and had the exact same problem. Asked Sharp when I went to his seminar -- he said that there is no way to solve the problem with the information given, that he talked with the authors of the study note and that they never intended to have people try to replicate the numbers in the tables. Getting around the circular nature of the problem is IMPOSSIBLE with the information given.

My advice, try to get down the basics, forget about trying to replicate the numbers for the Australian MoS method.

Good luck!

Anonymous
09-24-2001, 01:00 PM
Thanks for your response. I'm glad there's not something obvious I'm missing.

Anonymous
09-29-2001, 03:36 AM
Same problem in 8F. MoS seems to be circular when the profit carrier is Investment Income.
Btw, does your tables have odd DAC schedules? Mine has BOY amortization ie DAC interest on BOY DAC + Cap - Amort. Isn't it standard to have EOY amortization?