2018Fall Q24a

exam6_passexam6_pass
in CCIR.ARinstr

In Q24 a (i): Should Net income formula be = (1 – tax rate) * (NET U/W income+ Net investment income + Net other income) ? I noticed it doesn’t say word “net” in the formula on wiki. If this is correct, is U/W income = "NET" U/W income? (looks like that’s what’s being done in 24)

In Q24 a (ii): If year = x
Equity(x) = Equity(x -1) + Net income (x) + Change in Other comprehensive income (x) -> is this correct? If yes, I don’t think “Change in” OCI is mentioned in wiki notes?

Comments

  • grahamgraham

    Q24 a(i): You raise a good point.

    • If you're given the tax rate then you can use the formula from the wiki that you cited above.
    • If you're given the total tax (and not the tax rate) then you would subtract the total tax from the total income as in this exam problem.
    • Regarding the term net, this is often confusing because quantities can be net of reinsurance, net of salvage/subrogation, net of catastrophes, or net of taxes (and probably other things as well.)
    • Net U/W income in this problem means net of reinsurance. (I didn't use the term "net" in the formula in the wiki because I didn't want to confuse things by throwing in reinsurance as well. I implicitly assumed there was no reinsurance.)
    • Net Income in this problem means net of reinsurance and net of taxes. (You just had to know that.) In the wiki, I used the term "net" for income to mean net of taxes since I implicitly assumed there was no reinsurance.

    Q24 a(ii): This is from a reading that's no longer on the syllabus. I will make a note of that in the wiki. If you are asked to calculate equity, you should be able to do it from one of the 3 methods provided in the CCIR.ARinstr wiki article.

  • YouAreGivenYouAreGiven

    The examiner report's solution does not include realized gains, yet, the P&C-1 Annual return spreadsheet has realized gains included in Net Income.
    Thoughts?

  • grahamgraham

    If you're talking about part (a), you don't actually need the separate value for realized gains because it's already included in Net Investment Income. For others reading this post, here's the section of the quarterly return I assume you're referring to:

    In part (b) however, you do need the value for realized gains because that needs to be removed from investment income when calculating ROR (Return on Revenue).

    If I misinterpreted your question, please let me know.

  • YouAreGivenYouAreGiven
    Thank you Graham, this is precisely what I was confused about.
  • grahamgraham

    You're welcome!

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