Actuarial Outpost Reserves: Retrospective Formula
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#1
09-29-2010, 09:25 PM
 briere48 CAS Join Date: Mar 2010 Location: San Jose, CA Studying for Exam 7 Favorite beer: Stone IPA Posts: 29
Reserves: Retrospective Formula

For those who have completed the exam, did you make an effort to learn this method? It seems to me that unless a question asks you to write a reserve in terms of symbols, the prospective, recursive, and short-hand formulas would suffice? Naturally, I ask this in the interest of memory preservation.
#2
09-29-2010, 09:58 PM
 Force of Interest Member SOA Join Date: Sep 2009 Posts: 4,159

There's no reason why you shouldn't know this. Its not memorization, its understanding the concept of reserves. And yes I took MLC already.
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#3
10-05-2010, 01:30 AM
 jhp8 Member Join Date: Jan 2007 Posts: 278

Quote:
 Originally Posted by Force of Interest There's no reason why you shouldn't know this. Its not memorization, its understanding the concept of reserves. And yes I took MLC already.
I agree. This formula should be one you just know if you understand what the formula is trying to do in relation to reserves (accumulating premiums and accumulating benefits to a point in the future).
#4
10-04-2010, 10:48 AM
 Candy Holiday Member Join Date: Jul 2010 Posts: 855

Quote:
 Originally Posted by briere48 For those who have completed the exam, did you make an effort to learn this method? It seems to me that unless a question asks you to write a reserve in terms of symbols, the prospective, recursive, and short-hand formulas would suffice? Naturally, I ask this in the interest of memory preservation.
Here is a helpful answer. In the last sitting of MLC they had a question where they explicitly asked you to calculate a reserve using the retrospective method.

That being said it is possible for them to set up a problem where the retrospective might be the only way to get the reserve in a reasonable amount of time.

I am like you - I prefer this method the least. You might need it though, so I'd learn it. Sucks I know, but so does this exam.
#5
10-05-2010, 03:31 PM
 Carnifex Member Join Date: Sep 2009 Posts: 331

Quote:
 Originally Posted by briere48 For those who have completed the exam, did you make an effort to learn this method? It seems to me that unless a question asks you to write a reserve in terms of symbols, the prospective, recursive, and short-hand formulas would suffice? Naturally, I ask this in the interest of memory preservation.
The retrospective method makes long/difficult problems shorter/easier.
For example if your asked to calculate the reserve on a 10yr defferd annuity at time 5:

2 ways

1.) The long way (Prospective) = A - Pa

2.) The short way(retrospective) = Ps - tKx. However since there are no premiums in the deffered period P= 0, this reduces to just finding tKx. Much faster way to do the problem.
#6
10-05-2010, 07:11 PM
 dystrother Member Join Date: Jun 2008 Posts: 33

i always thought the retrospective formula in interest theory was dull and had little use...until i learned how to use it. I feel the same way with this retrospective formula but i still use it now. I'm working to get better at using it. I guess maybe I just don't fully understand tKx, cost of insurance. Is it just a term insurance (APV at t=0) accumulated to time t but dividing by tEx? Not sure if I'm missing anything but for some reason that hasn't been making sense to me. If its more than that, somebody holler, otherwise...writing this post may have just helped me help myself.
#7
10-08-2010, 10:30 AM
 Carnifex Member Join Date: Sep 2009 Posts: 331

Quote:
 Originally Posted by dystrother i always thought the retrospective formula in interest theory was dull and had little use...until i learned how to use it. I feel the same way with this retrospective formula but i still use it now. I'm working to get better at using it. I guess maybe I just don't fully understand tKx, cost of insurance. Is it just a term insurance (APV at t=0) accumulated to time t but dividing by tEx? Not sure if I'm missing anything but for some reason that hasn't been making sense to me. If its more than that, somebody holler, otherwise...writing this post may have just helped me help myself.
tEx ^(-1) is the accumulation factor. Like how in FM you have the discount
v = (1+i)^(-1), well v^(-1) = (1+i) (the accumulation factor). if tEx is the discount factor, tEx ^ (-1) is the accumulation factor.
#8
11-02-2010, 09:20 PM
 briere48 CAS Join Date: Mar 2010 Location: San Jose, CA Studying for Exam 7 Favorite beer: Stone IPA Posts: 29

Guess this was worth memorizing afterall...
#9
11-02-2010, 10:58 PM
 boboboy Member Join Date: Oct 2010 Posts: 134

Quote:
 Originally Posted by briere48 Guess this was worth memorizing afterall...
lol, indeed it was. I don't recall ever needing to use the prospective formula, which is weird, since this to me is the definition of reserve.
#10
11-02-2010, 11:22 PM
 Carnifex Member Join Date: Sep 2009 Posts: 331

Yeah there were two (maybe 3) questions I remember on this last sitting where you really needed to know (more importantly understand) the retrospective formula. I think one of them you couldn't possibly answer prospectively using the given information. The other would take a ridiculously longer amount of time if you used the prospective method. If you have studied the retrospective method, and you go over all released MLC/M/Course 3 exams there are at least 1-2 questions on every one of those that either require you to know it or make it worth your while in terms of saving alot of time spent on a problem.

End result: There are topics you can skip for this exam and still pass; however, I really think your taking a chance(risk) skipping retrospective reserve calculation.

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