Investment yield - out of date?

bulubalabulubala
edited October 2022 in MSA.Ratios

The questions asking for investment yield, like 2019 spring 21a or 2017 spring 13a, are out of date because they are part of old CCIR formulas, right?

Just want to confirm.

Thanks,

Comments

  • Staff-T1Staff-T1

    Thoughts @graham ?

  • grahamgraham

    Well, those questions were based on the MSA reading and the formulas in the MSA reading were never consistent with the CCIR reading. I think you still have to know how to do those problems. If it's an MSA problem then use the MSA formulas and if it's a CCIR problem then use the CCIR formulas. You can usually tell when it's intended as an MSA question because they will ask you whether the ratios are in the acceptable range. (It's confusing but that's the way the CAS has set it up.)

  • bulubalabulubala

    @graham
    But investment yield is an old CCIR formula instead of an MSA ratio, right?

  • grahamgraham

    For investment yield specifically, the formula is actually the same in the current CCIR instructions versus the old version but the financial statements are laid out differently.

    I'm not really sure how they would ask an exam question or exactly what they expect you to know here, but in 2019-Spring Q21 all they did was start with Investment Income then add realized gains and subtract investment expenses so that's something that's reasonable for you to know how to do. That's near enough the numerator of the investment yield formula. The general formula is as given below but often they don't give you all the terms - they just give you the "obvious" ones:

    The MSA reading has a formula for "Adjusted Investment Yield" which is slightly different from plain old "Investment Yield" and it does look like in the 2019-Spring exam problem that they used the CCIR version which would be "Investment Yield".

  • AndrewLAndrewL

    Hi @graham,

    1. Would it be accurate to say that Total Fair Value Gain(Losses) = Unrealized Gain(losses).

    2. In the MSA Reading, Net investment income formula does not include Total fair Value.
      Is this an error in the MSA reading or the formula for MSA is simply different from the one you gave above (CCIR Instructions)

  • Staff-T1Staff-T1
    1. That's right
    2. As Graham mentioned, you just have to use the MSA formula for an MSA question and a CCIR formula for a CCIR problem. They are just different. I do not know if MSA has an error or not. Given how long it has been in the syllabus, I would assume if it is an error it would have been fixed by now
  • AndrewLAndrewL

    Thank you for your quick reply!

    As a follow-up:
    1. If I understand correctly, Capital Gain = Realized Gain + Unrealized Gain right?

    1. Does Investment Income include capital gain at all?

    a) Based on the definition of investment income I found on the internet, investment income already includes capital gain(Therefore Realized Gain).

    b) Based on the formula below, it seems that it does not. Else we would be double counting realized gains.

    Net.InvInc = InvInc + (Realized Gains/Losses) - (Inv.Expenses)

  • Staff-T1Staff-T1
    1. Yes
    2. It depends on the formula used? For this question, they explicitly split out realized gains so it's quite obvious they want you to do something with it. I get that you'd like to have standardized notation but there is no one sized shoe that fits all. I would say that generally, MSA describes investment income as not excluding gains while net investment income as including gains, which is consistent with the question above
Sign In or Register to comment.