2012 Fall #21b)
Correct me if I'm wrong, but:
1. Numerator for ROR = (U/W Income + Investment Income - Capital Gains/Losses + Income From Subs)
2. Numerator for Insurance Return on Net EP = (U/W Income + Investment Income From U/W Operations - Capital Gains/Losses)
Income from subs = 0, as stated in the question.
Now, how can we divide one ratio by the other in order to eliminate their numerator if they aren't even the same? Should we assume that it is Investment Income for both numerators?
Comments
You are correct. Strictly speaking you cannot solve this problem because the numerators are different, unless you make the assumption that both terms for investment income are the same. And there is no reason to do this.
The MSA ratio paper doesn't actually provide formulas - it just provides descriptions of the formulas. I don't know why they present it like this, but it opens the door for confusion as is illustrated in the exam problem you referenced.
I don't think it was a good question. I will make a note of this in the wiki. Thank you for pointing it out!
Old problems like this one from 2012 are less relevant than more recent problems. The group of FCAS's creating the exam are probably totally different, so don't worry too much about it. It's a teachable moment!
Thanks Graham.