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#1
04-26-2019, 03:34 PM
 SweepingRocks Member SOA Join Date: Jun 2017 College: Bentley University (Class of 2019ish) Posts: 201
Full Preliminary Term Reserve Question

So I was going through some Coaching Actuaries Long Answer sample problems. Got to one about reserves and got all parts right except for one about FPT reserves.

The problem previously established that there were expenses associated with the insurance. However, when calculating the modified renewal premiums for FPT, the solution CA had did not take into account expenses and instead found the modified net premium and used that to calculate FPT reserves.

I know that FPT works by modifying the first premium to cover deaths in the first year and establish a reserve of 0 at end of year 1. I'm a bit confused why in this problem, expenses weren't taken into account.

I'll attach some pictures detailing the relevant parts of the questions. My issue is with part d in finding FPT reserve at end of year 2. As you can see, they found net premium instead of gross. Is it common practice to ignore expenses in this case?

Images: https://imgur.com/a/J3p6hKP
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FM P MFE STAM LTAM Modules: 1 2 3 4 IA 5 6 7 [Awaiting Results]

Former Disney World Cast Member, currently no idea what I'm doing

"I think you should refrain from quoting yourself. It sounds pompous." - SweepingRocks
#2
04-26-2019, 05:41 PM
 tkt Member CAS SOA Join Date: Jun 2011 Location: Des Moines College: Drake University Posts: 535

According to the SOA LTAM Notation and Terminology Note:

A modified reserve is a reserve computed without expenses but adjusting the valuation premiums to allow implicitly for initial expenses. A full preliminary term reserve is an example of a modified reserve. All modified reserves have the expected present value at issue of the benefits equal to the expected present value at issue of the valuation premiums; valuation premiums are typically lower in the first year or first few years than in later years. Any modified reserve questions on the examination other than full preliminary term reserves will specify the modification basis in the question.

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Tong Khon Teh, FSA, CFA
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#3
04-26-2019, 06:38 PM
 SweepingRocks Member SOA Join Date: Jun 2017 College: Bentley University (Class of 2019ish) Posts: 201

Yes it does! Thank you!!
__________________
FM P MFE STAM LTAM Modules: 1 2 3 4 IA 5 6 7 [Awaiting Results]

Former Disney World Cast Member, currently no idea what I'm doing

"I think you should refrain from quoting yourself. It sounds pompous." - SweepingRocks
#4
05-08-2019, 08:04 PM
 NchooseK Member SOA Non-Actuary Join Date: Nov 2012 Location: Philly area College: Swarthmore College (BA Mathematics), Villanova University (MS Applied Stat) Posts: 353

No FPT this time--expect if you retake!
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