Actuarial Outpost
 
Go Back   Actuarial Outpost > Exams - Please Limit Discussion to Exam-Related Topics > SoA > Group and Health Track > Group & Health Core Exam
FlashChat Actuarial Discussion Preliminary Exams CAS/SOA Exams Cyberchat Around the World Suggestions

Registration Form
Be Notified

of New
Actuarial Jobs

D.W. Simpson
& Company

International
Actuarial
Recruiters

www.dwsimpson.com

Australia Jobs
Casualty, Life,
Superannuation,
Health &
Investment

Pension
Actuarial Jobs

Consulting &
Insurers --
Students,
Associates &

Fellows


Group & Health Core Exam Old Group & Health Design & Pricing Forum

Reply
 
Thread Tools Display Modes
  #1  
Old 04-15-2012, 06:39 PM
bosactuary bosactuary is offline
SOA AAA
 
Join Date: Mar 2012
Posts: 6
Default Fall 2009 #7

Nov '09 #7 is an asset share question. I'm confused why Y3 the Premium is lapsed differently than the Y3 # of policies.


Given:
Market premium is $3000, discount is 15%
Y1 Lapse 0.4
Y2 Lapse 0.3
Y3 Lapse 0.3

In solutions, it shows:
Premium by Year
1=3000
2=3000*(1.0-0.4)x(1.15)=2070
3=2070*(1.0-0.6)x(1.15)=1666

# of Policies by Year
1=1
2=1*(1.0-0.4)x=0.6
3=(0.6)*(1.0-0.3)=0.42


Why isn't Y3 premium=Y2premium*(1-Y2lapse), which would be 2070*(1.0-0.3)x1.15. They seem lapsing logically for # of policies but not premium. What's the deal?!
Reply With Quote
  #2  
Old 04-16-2012, 12:11 PM
MATE Seminars's Avatar
MATE Seminars MATE Seminars is offline
Member
SOA AAA
 
Join Date: Jan 2008
Location: Idaho Falls
Studying for ever
College: Utah State University
Posts: 422
Default

That is just a typo. It should be 0.3, and they actually used 0.3 to get their answer:
2070 * (1.0 - 0.3) * 1.15 = 1,666.
__________________
Mark Bird
website: www.mateseminars.com
e-mail: mateseminars@hotmail.com
Reply With Quote
  #3  
Old 04-18-2012, 11:31 AM
Actuarialness Actuarialness is offline
Member
 
Join Date: Jan 2009
Posts: 47
Default

I just noticed another error in this solution. The last step calculates ROE as the PV of after-tax profit over the required capital, except that equation doesn't produce the answer they give. The answer of 3.18% is just the PV of after-tax profit over PV of premium. The answer to their equation is 15.9%.

I'm confused as to why the Cost of Capital percentages given in the model are never used in the solution. Do we just ignore that since they gave us the total required capital of 20%?
Reply With Quote
  #4  
Old 04-19-2012, 09:58 AM
MATE Seminars's Avatar
MATE Seminars MATE Seminars is offline
Member
SOA AAA
 
Join Date: Jan 2008
Location: Idaho Falls
Studying for ever
College: Utah State University
Posts: 422
Default

The cost of capital percentages are not used because capital is reflected instead as the equity in the ROE calculation. So adding in that cost of capital would be double counting in a way.

If on the other hand we were calculating present value of profits as a percent of premium, then those cost of capital assumptions could be used (although many past exam problems have done this calculation without any cost of capital assumption provided in the problem).

For the syllabus source on this topic, see the last paragraph of chapter 5 of the Individual Health Insurance book. It isn't perfectly clear there, but it is the best there is on the syllabus to guide us on this question.
__________________
Mark Bird
website: www.mateseminars.com
e-mail: mateseminars@hotmail.com
Reply With Quote
  #5  
Old 04-19-2012, 02:19 PM
Actuarialness Actuarialness is offline
Member
 
Join Date: Jan 2009
Posts: 47
Default

That makes sense. Thanks for the help!
Reply With Quote
Reply

Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off


All times are GMT -4. The time now is 03:24 AM.


Powered by vBulletin®
Copyright ©2000 - 2014, Jelsoft Enterprises Ltd.
*PLEASE NOTE: Posts are not checked for accuracy, and do not
represent the views of the Actuarial Outpost or its sponsors.
Page generated in 0.13247 seconds with 9 queries