Quote:
Originally Posted by fightinphilz
I understand all the steps here in the SOA solution except for how they are calculating expected inforce contribution. Can someone explain how they are going from the formulas presented in the reading, to the formula they are listing there in the sample solution? namely, they say that
EC of IF business = [IBV (t1) + RC (t1)] x RDR
From the reading, the formula for line 5 of the AoM Report should be:
EC of IF business = IF EIBV (t)  IBV (t1) = IBV(t1) x RDR  IF BP(t) + CoC (t)
how do you get from the 2nd formula back to the first?

Hello,
Your second formula is set up right but it is not equal to "EC of IF business" as you have stated. It is equal to "the inforce business expected increase in IBV"
So it should be (see page 22 of source formula #18):
the inforce business expected increase in IBV = IF EIBV (t)  IBV (t1) = IBV(t1) x RDR  IF BP(t) + CoC (t)
Then to get from there to the EC of IF business ....
EC of IF business = expected increase in IBV plus expected net income (page 22 of the source material)
Using your formula: expected increase in IBV = IBV(t1) x RDR  IF BP(t) + CoC (t)
expected net income = IF BP(t) + i(t) * RC(t1)
Then use CoC(t) = [RDR  i(t)] * RC(t1)
Then put it all together
EC of IF business =
IBV(t1) x RDR  IF BP(t) + [RDR  i(t)] * RC(t1)
+
IF BP(t) + i(t) * RC(t1)
(the book profits and the i*RC terms fall out and you are left with your answer)
= IBV(t1) x RDR + RDR * RC(t1)
 IF BP(t) + IF BP(t)
 i(t) * RC(t1) + i(t) * RC(t1)
=[IBV(t1) + RC(t1)] * RDR
I hope that helps you.
Dustin