Question 3
PART A
I get confused about the "LRC under GMM"
1) Based on the 'waterfall' diagram for FCF and CSM, at time 0 the FCF + CSM is 0 -> Is this correct?
2) Time goes on, your CSM and FCF decreases at their own pace (bc you're reaching the end of the term?) So, the difference after time 0 shouldn't be zero?
Is it safe to say a pmt pattern that isn't uniform and all over the place will likely break the 2nd condition? Want to get a sense for why this diff will be larger as time goes on btwn LRC PAA vs GMM
PART B:
RE CSM vs Direct difference. Is another difference that RE is recognized before recognition (bound)?
Anything else that comes to mind?
Comments
1) Yes FCF + CSM = 0 at time 0.
2) Correct
3) The CSM is drawn down as service is provided (usually uniformly unless you have certain seasonal policies like cat reinsurance for example) I am unsure what you mean by difference will be larger as time goes on/
Part B: I I do not know what you mean by "RE"
No, reinsurance would not be recognized before it is bound
For Life ins when they say FCF... they usually mean Premium - Claims - RA...
Is it reversed for PAA?
I see some confusion stated earlier.
https://battleactsmain.ca/vanillaforum/discussion/710/formula-for-fcf/p1
What would've this question treat FCF?? How would one know what they are referring to in the question?
I don't know anything about life insurance so I can't speak on that. What do you mean reversed for PAA? The PAA does not require an estimate for the FCF.
They usually wouldn't provide you the FCF directly and you'd need to calculate it yourself, which is where you can define it however you want. There is a commentary in the wiki alluding to the fact that questions were asked to the CAS about the signs and no response was given
Reversed meaning the -ve actually means FCF is profitable
For PAA specifically, there is no ambiguity around the signs. It's always UEP - DAC so there wouldn't be confusion there. And being negative does not necessarily mean profitable specifically for the PAA