Appendix B; Example B1b
Can you please help me calculate CSM for End of Q1/01. I was able to calculate FCF correctly (file attached) but not able to verifying it with CSM amortization: "FCF calculated CSM at each period" and "the amortized CSM at each period" are not tallying up. I have a feeling there might be something wrong in my interest accretion calculation in tab "CSM Amortization" cell J27 as example.
Also, on a side note: do you reckon we need to know these appendix calculations for PAA vs GMM in depth (especially CSM amortization when FCF expectations change) ? Or should we just think of these as examples to help in understand for which cases PAA LRC can be different from GMM LRC (ex: annual prem instead of quarterly when discounted, variability related aspects (significant changes in FCF expectations, DR changes)) ? In the syllabus there are no exclusions for these appendices.
Comments
Found the errors
able to reconcile the csm with pdf now. Was not including interest accretion in the ending csm, also, changed the formula for interest accretion a bit.
Great! I am glad you are able to solve it. If I were studying this exam again I would view them as more illustrative examples to help understand when the PAA estimate will differ materially from the GMM approach as the main focus. If you have additional time, then understanding the calculations in depth will ofc be a help. That said, on the balance of probabilities I don't think it is likely they will test to such detail