APV vs PV

jptardif2

Hi Graham,

At this point the difference between APV and PV is crystal clear, but for some reason I feel like the CAS is making it its personal mission to make it as unclear as possible. Here are two examples of what I mean:

1. Fall 2015 Q18 -> APVs are labeled as "Net unpaid claims discounted" and "Net premium liabilities"
2. Fall 2017 Q20 -> APVs are labeled as "Net claim liabilities and "Net premium liabilities"

Why should we assume those are on an APV basis? Because they give us the sum of the PfADs in the question? Usually I would just state my assumption, but in the Examiner's report for Fall 2015 Q18b), it clearly says that one common error is "Forgot to exclude PFADs to net premium liabilities and to net unpaid claims discounted."

I know there is probably not much to say other than, well, state your assumption, but any other advice or am I missing something, because when I read these four names, I can't say right off the bat if they are on an APV or PV basis.

Thanks,

graham

Yeah, they use different terms to mean the same thing. Dumb. In 2015, they say "discounted", which makes you think it's somehow different from 2017 where the don't say discounted, even though both are APV.

So, here's how I would resolve this. First 2015.Spring was only the second time this MCT methodology was on the syllabus. It was brand new methodology that replaced the old (and different) way of calculating MCT. It's likely that the examiners did not completely understand the new methodology themselves. For that reason, I would pay more attention to the wording they used in 2017.

Second, I pasted a short section from the MCT source text below. It seems they use the terms "net amount" or "net premium liabilities" to mean APV. So I think if you see this on an exam question, you can pretty much always assume it is APV. In your answer, you could include the phrase: According to the MCT source text, "net claim or premium liabilities" means APV so that will be my assumption for this problem.

4.2.1. Margin for unpaid claims

• The margin for unpaid claims is calculated by line of business, by multiplying the net amount at risk (i.e. net of reinsurance, salvage and subrogation, and self-insured retentions) less the provision for adverse deviation (PfAD), by the applicable risk factors.

4.2.2. Margin for premium liabilities

• The margin for premium liabilities is calculated by line of business, by multiplying the greater of:
• ==> net premium liabilities (i.e. net of reinsurance) less the PfAD; and
• ==> 30% of the net written premiums for the past 12 months

by the applicable risk factors.