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  #551  
Old 05-09-2018, 09:36 AM
hjacjswo hjacjswo is offline
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Can't remember if anyone has asked about this one yet: #10 part C

Briefly describe two reasons an actuary might be involved in the allocation of expenses to line of business.

I said they would be familiar with the risk loads required for each line, and that since it's subjective the more people giving opinions the better.

I feel better about the first reason than the second, but can't find it in the material anywhere.
I think i said something like you can use ptojected ultimate loses to allocate expenses to an lob. An actuary develops the ultimates. I dont remember what the other point i put
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  #552  
Old 05-09-2018, 10:58 AM
scratches2k5 scratches2k5 is offline
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Q19c) "Fully describe one reason the treatment of bonds under SAP accounting may be in conflict with the general philosophy of SAP accounting"

Any thoughts? I remember I put something that seemed like at least partial credit, but I was definitely winging it. I think I put something like,

"Unlike GAAP, SAP valuation depends on the class of the bond. SAP is primarily focused on liquidity of assets, not credit risk, so that the company can pay claims. It is possible that a lower-class bond can still easily be sold for cash, so it could make more sense to value bonds more similarly to GAAP, which values bonds based on whether they're intended to be held or traded."

I'm not sure how valid that is. (I'm also guessing I didn't word it quite as nicely on the exam.)



IIR i said something along the lines of since SAP allows a company to value it's bonds using their own approach (prudent person), a bond which otherwise might be selling for way lower on the open market might be carried at a higher amount by the company thereby giving a false sense of high worth blah blah. Man, I just free-styled on like a 1000 Questions
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  #553  
Old 05-09-2018, 11:06 AM
scratches2k5 scratches2k5 is offline
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Originally Posted by trevmac123 View Post
Can't remember if anyone has asked about this one yet: #10 part C

Briefly describe two reasons an actuary might be involved in the allocation of expenses to line of business.

I said they would be familiar with the risk loads required for each line, and that since it's subjective the more people giving opinions the better.

I feel better about the first reason than the second, but can't find it in the material anywhere.
1) They are able to use it as a source of bench marking to make more informed decisions about the adequacy of pricing in a particular LOB, 2) helps to also make any necessary adj to reserves they may have but up for a LOB.
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  #554  
Old 05-09-2018, 11:07 AM
hjacjswo hjacjswo is offline
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Originally Posted by AO_Throwaway_Acct View Post
Q19c) "Fully describe one reason the treatment of bonds under SAP accounting may be in conflict with the general philosophy of SAP accounting"

Any thoughts? I remember I put something that seemed like at least partial credit, but I was definitely winging it. I think I put something like,

"Unlike GAAP, SAP valuation depends on the class of the bond. SAP is primarily focused on liquidity of assets, not credit risk, so that the company can pay claims. It is possible that a lower-class bond can still easily be sold for cash, so it could make more sense to value bonds more similarly to GAAP, which values bonds based on whether they're intended to be held or traded."

I'm not sure how valid that is. (I'm also guessing I didn't word it quite as nicely on the exam.)
I said along the line of that higher grade bonds are valued at amortized costs and the lower grade bonds are valued at min of amortized and fair value costs. SAP is liquidation based and wants to know how much the company's worth if it's liquidated. Amortized costs might not necessarily reflect the values at which the bonds are sold/liquidated at.
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  #555  
Old 05-09-2018, 11:11 AM
scratches2k5 scratches2k5 is offline
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I said along the line of that higher grade bonds are valued at amortized costs and the lower grade bonds are valued at min of amortized and fair value costs. SAP is liquidation based and wants to know how much the company's worth if it's liquidated. Amortized costs might not necessarily reflect the values at which the bonds are sold/liquidated at.
This definitely makes sense; wish i could have carried my idea across much better lol...ah well
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  #556  
Old 05-09-2018, 11:18 AM
scratches2k5 scratches2k5 is offline
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I know there has been much mention about Q14; what exactly is the solution?
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  #557  
Old 05-09-2018, 03:19 PM
trevmac123 trevmac123 is offline
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1) They are able to use it as a source of bench marking to make more informed decisions about the adequacy of pricing in a particular LOB, 2) helps to also make any necessary adj to reserves they may have but up for a LOB.
That's interesting. I interpreted the question as asking why an actuary would be involved in the actual process of allocating the expenses, not what they use the allocations for.
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  #558  
Old 05-09-2018, 03:34 PM
scratches2k5 scratches2k5 is offline
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That's interesting. I interpreted the question as asking why an actuary would be involved in the actual process of allocating the expenses, not what they use the allocations for.
Yeah you are right; I was also thinking it's similar to saying "The usefulness of the whole allocation by LOB to the actuary and why he may be involved....". My answer was worded in a way to indicate the benefits of him partaking in it; Help with him having more knowledge on the pricing adequacy for a particular line; or if the reserves have to be adjusted blah blah..
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Last edited by scratches2k5; 05-09-2018 at 03:42 PM..
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  #559  
Old 05-10-2018, 04:30 PM
ManualThumper ManualThumper is offline
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Originally Posted by scratches2k5 View Post
IIR i said something along the lines of since SAP allows a company to value it's bonds using their own approach (prudent person), a bond which otherwise might be selling for way lower on the open market might be carried at a higher amount by the company thereby giving a false sense of high worth blah blah. Man, I just free-styled on like a 1000 Questions
You probably have confused prudent person standard with SAP valuation rule. Prudent person standard is for investment guideline, and SAP bond valuation rule is not modified by the prudent person standard.
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