Reply To: [ILA Track] Intro to ILA Module Exercise Task 3: Actuarial Pricing Memo

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#1581
nicktheactuary
Participant

It sounds like we did it similarly. I used the hurdle rate instead of the the investment rate because in the profit measures reading (may be the what you are referencing) one of the examples mentioned used 7%, which was the hurdle rate, to discount when DE is negative. To solve for the ROI, I used formula 11.5.3 that was referenced in the reading. For the baseline 40-year horizon, I got 11.2% as the ROI.

For Embedded Value, I used the 4% to discount when DE are negative and then the 10% hurdle rate when positive because the section on PV said that the discount rate to use for negative DE is typically set less than the hurdle rate and is typically set to the investment rate. For the baseline 40-year horizon, I got 14.64.

Let me know if that sounds reasonable.

Also, I am having a little trouble figuring out how to calculate NB strain as a % of premium, is it simply first DE (cell C43) divided by first year premium (cell C27)?