CAS 2002 #83

[miaomiao]

after reinsurance, I calculated an asset of 29.375, and liability of 20.703 and the surplus is 8.672.

The total surplus is the same as the CAS answer, but I found CAS put the ceding commission in the asset which i don't understand. The company has not paid reinsurance premium, how come the ceding commission was booked? I thought they should book a libaility of ceded premium payable net of ceding commission of 25 * .5 * .7 = 8.75.

Please let me know how you think about this.

[glad]

I'm with you. SSAP No. 62, paragraph 50 states:

"Commissions receivable on reinsurance ceded business shall be included as an offset to Ceded Reinsurance Balances Payable."

As you say, the answer does not change, it's just an asset on one side, or a contra-liability on the other. It is frustrating that the "model" solution has an error in it. This was obviously not a question on SSAP 62, but rather if you could figure out surplus relief. Maybe I think the graders are generous, but I would think you'd get full credit for either way. (considering that the wrong way got full credit). anyone have any thoughts on this?

[miaomiao]

in exam 2003, there was a question #46 about net income calcualtion. The model answer was wrong, too. It added the net unrealized capital gain to previous surplus, which should be change in net unrealized capital gains. Not sure if people who answered in correct way got full credit.

If I was not confident that I was right, I would be misled by this sample answer.

[glad]

Originally Posted by miaomiao

in exam 2003, there was a question #46 about net income calcualtion. The model answer was wrong, too. It added the net unrealized capital gain to previous surplus, which should be change in net unrealized capital gains. Not sure if people who answered in correct way got full credit.

If I was not confident that I was right, I would be misled by this sample answer.

agree with you here too. the adjustment to surplus is change in net unrealized capital gains or losses. solution should be 1006.6

[glad]

which leads to my feelings about the appeals process. I can't see how you could possibly appeal when you never see what was marked wrong on your exam. It drives me nuts that they can't even tell you exactly how many points you got on a question. Plus, how are you supposed to remember exactly how you answered a question?

[jk]

Originally Posted by miaomiao

If I was not confident that I was right, I would be misled by this sample answer.

You're right; I just went back over my notes, saw that I had 1006.6 as the answer to this question and had docked myself a half-point without thinking about it.

The problem, as I read more, is that the syllabus reading is incorrect. IASA Page 5-13 says, "That change (in PHS) is made up of the sum of: net unrealized capital gains (losses), Line 23 . . ."

Of course, Line 23 is actually labelled, "Change in net unrealized capital gains or losses."

So the right answer to the question was 1006.6, but CAS had to accept 992.6 based on the incorrect syllabus reading.

So what to they do? They publish the wrong-but-allowed solution as the "model" answer, with no indication that a different solution was actually correct and also got (we hope!) full credit.

That's just laziness. That's absolutely disgraceful on the part of CAS. There is no excuse for it.

[Colymbosathon ecplecticos]

Originally Posted by jk

So the right answer to the question was 1006.6, but CAS had to accept 992.6 based on the incorrect syllabus reading.

So what to they do? They publish the wrong-but-allowed solution as the "model" answer, with no indication that a different solution was actually correct and also got (we hope!) full credit.

That's just laziness. That's absolutely disgraceful on the part of CAS. There is no excuse for it.

The model answer?? The CAS does not generally publish model answers. It publishes actual papers submitted by candidates that got essentially all of the points (occasionally a composite solution will be made.)

Be happy that you get to see the actual old exams --- ask your SoA brethren if you don't believe me. Getting to see accepted solutions is a real plus --- it takes a lot of volunteer time to put them together --- to call the volunteers lazy is simple ignorance on your part.

[glad]

but is there a "model" answer for graders to use when grading the exams? What is the reason for not publishing that, and instead publishing candidate solutions?

just curious.

I hear ya about the large amount of volunteer time the exam committee puts in.

[sd978]

Originally Posted by miaomiao

after reinsurance, I calculated an asset of 29.375, and liability of 20.703 and the surplus is 8.672.

The total surplus is the same as the CAS answer, but I found CAS put the ceding commission in the asset which i don't understand. The company has not paid reinsurance premium, how come the ceding commission was booked? I thought they should book a libaility of ceded premium payable net of ceding commission of 25 * .5 * .7 = 8.75.

Please let me know how you think about this.

I don't see any problem with this question...since the questions says..."and receives a 30% ceding commission although vanilla has not paid any reinsurance premiums"....which indicates that they have received the cash and hence an increase in asset...not sure if this is how reinsurance works in practice..but this makes sense in the given situation....

[miaomiao]

It just mean that they should receive 30% ceding commission. No reinsurer will pay you cedidng commission before reseiving reinsurance premium.