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  #181  
Old 10-21-2019, 03:05 PM
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Originally Posted by angryleslieknope View Post
And I think we've gotten to my bigger issue with testing the topic - it's a badly written, extremely brief piece of an extensive syllabus and surely there are other questions you could ask to assess the qualifications of a candidate.
100% agreed.
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  #182  
Old 10-21-2019, 03:40 PM
jominican jominican is offline
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Can anyone explain how to solve problems like Fall2017 Q27 ad Fall2016 Q26? The solutions don't seem entirely clear to me after trying to work it out myself, because I feel like the two problems are similar but different methods to solve it.

I've posted the links to the questions below and would really appreciate it if someone can walk me through the solution.

https://www.casact.org/admissions/st...m6u/f17-6u.pdf
https://www.casact.org/admissions/st...6u/f16-6us.pdf


Again, much thanks in advance to the kind person who'll take the time to type out an explanation!
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  #183  
Old 10-21-2019, 04:31 PM
angryleslieknope angryleslieknope is offline
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Can anyone explain how to solve problems like Fall2017 Q27 ad Fall2016 Q26?
The questions are similar - they're both based on how triangles change as the result of a commutation and the change in taxable income from a commutation. But the solutions look different because of the data you're given to start with.

At its most basic - for a commuted policy year and from the perspective of the primary insurer, in the most recent calendar year the ceded reserves will be 0 and the net paid reserves will decrease by the commutation price. Other triangles adjust to reflect those changes.

Two components of a commutation change taxable income - the commutation price/premium and the addition or closure of reserves. For the primary insurer, the commutation premium increases taxable income (because it's cash in) and that's offset by the increase in discounted reserves re-assumed from the reinsurer.

The solutions look different because they're based off of different starting data - in the F17 problem, you're given the ceded paid amounts and the net reserves. In F16 you're given the direct paid and direct reserves.

F17a asks you to price the commutation to result in no income tax for the primary - in this case you set the total change in taxable income to the negative of the current taxable income, so that total taxable income after the commutation is equal to 0, and solve for the implied commutation price.

F16b asks for the change in taxable income with a set commutation price for each insurer.

For the triangles questions, the difference in solutions comes from being given different starting triangles.



This is a massive wall of text, let me know where it gets confusing or if there's anything I can clarify.
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  #184  
Old 10-21-2019, 06:43 PM
jominican jominican is offline
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Originally Posted by angryleslieknope View Post
This is a massive wall of text, let me know where it gets confusing or if there's anything I can clarify.
Thanks for clarifying! Can you further explain how the triangles are calculated in 26a) of f16 and how that differs from how the triangles are calculated in f17?
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  #185  
Old 10-22-2019, 12:09 AM
x_chuck_x x_chuck_x is offline
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Originally Posted by jominican View Post
Can anyone explain how to solve problems like Fall2017 Q27 ad Fall2016 Q26? The solutions don't seem entirely clear to me after trying to work it out myself, because I feel like the two problems are similar but different methods to solve it.

I've posted the links to the questions below and would really appreciate it if someone can walk me through the solution.

https://www.casact.org/admissions/st...m6u/f17-6u.pdf
https://www.casact.org/admissions/st...6u/f16-6us.pdf


Again, much thanks in advance to the kind person who'll take the time to type out an explanation!

I assume you are referring to the triangles.
#27

Net paid loss triangle. You are given the ceded paid loss triangle. Since it's 25% QS, the net is
250 x 0.75 0.25 = 750
350 x 0.75 0.25 = 1050

That is, divide by the QS % to get the Gross Paid and then multiply by 1 - QS% to get the retained paid. Then on the last one, where the commutation is, you SUBTRACT the commutation price. So,
450 x x 0.75 0.25 - 250 = 1100

750 1050 1100
750 1050
750

The net ultimate one is the Net reserves + the net paid from the previous part. So,
1500 + 750 = 2250
1100 + 1050 = 2250

The last part, where the commutation is you have to also add in the reserves from the reinsurer that are being reassumed by the insurer. So,
900 + 300 + 1100 = 2300

2250 2250 2300
2250 2250
2250



#26
They give you DIRECT paid loss instead of CEDED paid loss. But it's easy because it's 50% QS. So, half of it is ceded and half is retained. Net paid loss is just half. So at 12 months, it's
50% x 1000 = 500.
Then at 24 months it's 50% x 2000 - 700 [the price of the commutation] = 300

500 300
500


Then the Net Ultimate is the same, but we have direct again, so you have to take 50%.
50% x 2000 + 500 = 1500
Then where the commutation is, the whole 1500 + the 300 net paid = 1800

1500 1800
1500


Then the third one - Reinsurer's gross ultimate - is different. But, Since it's 50% QS, the first column is the same - 1500.
The 24 months one is just the amount of the paid losses + the commutation price. There are no reserves because that's the point, right.
So, they've already paid 1000 and then they paid another 700 for the commutation. So, 1000 + 700 = 1700.

1500 1700
1500


And of course, at each point the sum of the insurer's and reinsurer's ultimates are equal to the gross paid + gross reserves.
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  #186  
Old 10-23-2019, 10:48 AM
angryleslieknope angryleslieknope is offline
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Ugh: the fall 2018 examiners' report is badly written and even has straight up typos in calculations.

Yay?: I'm familiar enough with some of the material that I'm noticing and then verifying what I think are typos (but I'm probably missing others)
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  #187  
Old 10-23-2019, 11:05 AM
Mullered Mullered is offline
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Originally Posted by angryleslieknope View Post
Ugh: the fall 2018 examiners' report is badly written and even has straight up typos in calculations.

Yay?: I'm familiar enough with some of the material that I'm noticing and then verifying what I think are typos (but I'm probably missing others)
Not sure how accurate this is but I fell like I am noticing a lot more typos in the examiner's reports for 6 than I remember seeing for 5
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  #188  
Old 10-23-2019, 11:43 AM
jominican jominican is offline
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What's the difference in the treatment of Discounted Loss Reserves in income tax between F17 q21 and Sp15 q17? Seems like the solution adds it for Sp15 and subtracts it for F17.

https://www.casact.org/admissions/st...u/sp15-6US.PDF
https://www.casact.org/admissions/st...m6u/f17-6u.pdf
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  #189  
Old 10-23-2019, 12:01 PM
angryleslieknope angryleslieknope is offline
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The distributive property.
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  #190  
Old 10-23-2019, 12:02 PM
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Originally Posted by jominican View Post
What's the difference in the treatment of Discounted Loss Reserves in income tax between F17 q21 and Sp15 q17? Seems like the solution adds it for Sp15 and subtracts it for F17.

https://www.casact.org/admissions/st...u/sp15-6US.PDF
https://www.casact.org/admissions/st...m6u/f17-6u.pdf
I can answer this. F17 is the simple problem because you end up calculating UW profit yourself according to taxable income: EP + 20% UEPR change - paid loss/LAE - change in discounted reserves. Done. S15 already gives you the UW profit, but does it according to SAP rules, so you have to adjust it to conform to income tax rules. Since SAP reserves are not discounted, you have to add back in the change in reserve discount to get to taxable UW profit (in addition to other steps).
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