Fall 2019 Q16
Hi,
From the solution it seems the GEP is part of the cash amount otherwise it would be double counting? But how are we able to know that in the first place? When I approached the question I didn't reduce the rein cost and reinstatement from cash before calculating the inv inc.
Thanks
Comments
From the solution it seems the GEP is part of the cash amount otherwise it would be double counting? <- I think you need to rephrase this. I am having trouble understanding what you mean here. Where in the solution does it imply that GEP is part of the cash amount?
For this question, how come the calculation for investment income (based on investment yield) is different then the formula used to calculate the investment yield (Net II / cash + bonds (start and end) MINUS Net II)?
I am not sure I follow. What formula for investment yield? The investment yield here is given as 5%
I believe what they are referring to is in the question when calculating total income, you have to calculate the UI and II, for UI premiums and losses ceded are removed to get the NEP and net loss which is fine.
But when calculating the II the examiner's solution subtracts ceded and reinstatement premiums from bonds and cash before multiplying by the investment yield of 5%
Well I think in the solution ceded and reinstatement premiums are treated as a cash expense rather than ceded premium. I personally don't think it should be included in the investment income calculation imo but if that's what the graders expect then it is what it is
fyi..I wrote to the CAS regarding issues with this exam problem but they dismissed my concerns. I don't think it's a good problem and my advice is to not spend too much more time on it.
Just to add on here: Even if they acknowledge a mistake they will not go back to change the mistake in the posted past years