This is another exam question that I’m receiving several emails about.

Since InsFleet is initially ceding 100% of the business, and then reassuming a percentage, there is an alternate (and probably better) way to answer this question: the numbers in Part 1 (assumed losses) could be calculated without subtracting the direct losses (so we are basically assuming that 100% of the losses that Infleet retains are assumed losses; which is exactly what the question mentioned).

Therefore, there are 3 components to the assumed losses:

AY 99 @ 12/31/99 = 9K

AY 99 development = 2K

AY 00 = 40K

Total = 51K

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2 things:

First, there have been 2 minor updates to the notecards:

-the ASOP20 cards have been renamed ASOP41 (there are no cards for ASOP20)

-RBC notecard 14 (3 reasons supporting a reinsurance charge): the answer to this one has been fixed.

Second, the RBC exam videos were the same as those used last year, and therefore stated the the RBC square root formula is not on the syllabus. I need to update these videos, as the formula IS now back on the syllabus. ~~I’ll try record the new version (where I calculate the RBC needs) next week. ~~ *(VIDEOS HAVE NOW BEEN UPDATED – 7/25)*

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I am also getting a few emails about this question – a few people are confused about the calculation of the liabilities prior to reinsurance (in particular the 0.75 and 0.25 terms).

The policy was written 10/1 and it is currently 12/31, and so 3 months (25%) of the policy have elapsed. Therefore 25% of the premium has been earned. Based on this 25%, we can establish the two components of the liability:

-Unearned premium reserve (UEPR) – 75% of the liability is unearned. Therefore UEPR = 75% * WP = 75% * 25

-Loss Reserves: note that the loss ratio of 60% is based on the earned premiums. EP = 25% * 25. Therefore reserves=0.6*(0.25*25).

A common mistake in this question is to set the liabilities as 60% of 25 (ie the entire liability is loss reserves). We can not do this though as the premium has not been earned entirely – the assumption is that the insurer will incur losses uniformly throughout the year.

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I am getting several emails about the equations for the Provision for Reinsurance from the Feldblum paper not reconciling with the equations provided in the TIA notes. I do not believe that the Feldblum equations are correct… my notes are using the formulae specified by the actual NAIC Schedule F exhibits (which are also on the syllabus).

On an unrelated note, if you email me about a past exam question, I would appreciate if you could let me know which paper the question is from -that way I can find it more easily. Thanks in advance.

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If you have any questions, please do not post them to the blog, as we do not receive any notification. Just send us an email (angelo@theinfiniteactuary.com or ken@theinfiniteactuary.com).

Note that I have made some minor edits to some of the videos, so you may see them appear as “new”. Nothing major (no new content) – I just rerecorded a few sections. So far, I have modified Schedule F (video 4), Schedule P (1-3) and RBC (1 & 2). I may do some more in the future.

Finally, there’s one thing that I didn’t mention in the original recording of Schedule P (however it is mentioned in the new edition). This is regarding updating Part 2 using Part 1 data. Because Part 1 is net of tabular discounts, but Part 2 is gross of all discounts, we need to gross up the Part 1 data with the tabular discounts if they exist (in other words convert part 1 data to an undiscounted basis).

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The Williams study manual that was posted was the incorrect file. I have updated this with the correct version of Williams.

I will be posting the study manuals for A.M. Best 1 and Blanchard Reinsurance on Saturday. Freihaut & Vendetti with FAS 113 will be posted next week. I am working on new videos also. This will be posted in late July and early August. (*updated 7-16-2012*)

We are adding the notecards as they are completed. They will be posted over the next several weeks.

Good luck studying.

Ken

News, Updates

I will be posting errata to a spreadsheet in the “Introduction” section of the Study Manual website. I will keep this updated, so please be sure to check this often.

If you see any other errata, I would appreciate if you could let me know: angelo@theinfiniteactuary.com

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