2010 Spring CSP exam, #12

[Bballry1234]

I do not understand Part A of number 12 on the 2010 CSP exam:

1. Why is the y-axis called "Amount of income/ Risk Margin"? I thought those were completely different ideas!

2. Why is the IFRS spiking upward so dramatically? What's the intuition for comparing scenario 1 to scenario 2 (or 1 vs. 3, 1 vs. 4)?

3. For parts b and c, I'm right in thinking that these two are simple cases of higher/lower liability now = lower/higher earnings later, correct?

[Bballry1234]

Originally Posted by Bballry1234

I do not understand Part A of number 12 on the 2010 CSP exam:

1. Why is the y-axis called "Amount of income/ Risk Margin"? I thought those were completely different ideas!

2. Why is the IFRS spiking upward so dramatically? What's the intuition for comparing scenario 1 to scenario 2 (or 1 vs. 3, 1 vs. 4)?

3. For parts b and c, I'm right in thinking that these two are simple cases of higher/lower liability now = lower/higher earnings later, correct?

[puntbamapunt]

Can't help you right now, but I love that fact that you're keeping this forum alive. Hopefully in the next few weeks when I get more into problem solving/memorization I'll be able to help you out some more (as I'm sure other people will too).

[CowboyGuy]

Originally Posted by puntbamapunt

Can't help you right now, but I love that fact that you're keeping this forum alive. Hopefully in the next few weeks when I get more into problem solving/memorization I'll be able to help you out some more (as I'm sure other people will too).

[Bballry1234]

Originally Posted by Bballry1234

I do not understand Part A of number 12 on the 2010 CSP exam:

1. Why is the y-axis called "Amount of income/ Risk Margin"? I thought those were completely different ideas!

2. Why is the IFRS spiking upward so dramatically? What's the intuition for comparing scenario 1 to scenario 2 (or 1 vs. 3, 1 vs. 4)?

3. For parts b and c, I'm right in thinking that these two are simple cases of higher/lower liability now = lower/higher earnings later, correct?

1. I think this is referring to the amount of income from amortization of the margin.

2.

IFRS would see a gain at issue if the PV(future cash flows) > PV(cost of capital risk margin)

IFRS would see a loss at issue due to non-incremental acquisition costs

GAAP would see a loss at issue due to non-deferrable acquisition costs.

3. I was correct.

[CowboyGuy]

Originally Posted by Bballry1234

1. I think this is referring to the amount of income from amortization of the margin.

2.

IFRS would see a gain at issue if the PV(future cash flows) > PV(cost of capital risk margin)

IFRS would see a loss at issue due to non-incremental acquisition costs

GAAP would see a loss at issue due to non-deferrable acquisition costs.

3. I was correct.

Answering your own questions... Are you really asking questions or indirectly teaching us lol?

[ActuarialRock]

Another disaster of a solution.

Good god, the IFRS is completely wrong. IFRS gain/loss at issue can ONLY be a loss due to the residual margin. htf are they coming up with that huge spike at issue.

[ActuarialRock]

"The initial loss under GAAP is due to non-deferrable first year acquisition cost."

It's not even a loss on the graph.

[ActuarialRock]

Non-incremental acquisition cost would also hit IFRS at issue, causing a loss there too.

[ActuarialRock]

This problem is done in the ACE live seminar manual and I agree with the solution they have there which differs completely from this solution.

The 2010 exam is such a mess.