I try my best. Hope this will you.
1. The tricky part in this question is R is not a constant. As i
increases so does R (may be by the same amount) because investors want
higher return on a high interest rate environment. Same reason applies
to A and B in the solution to 97 question 3.
2. I think on page 93, it should say (when referring to income
statement) "change in Reserve for Discount" instead of "Reserve for
Discount". See page 54 of the paper, last sentence on the 2nd
paragraph, Philbrick says "Similarly, the reserve for discount is
increased, but by a smaller amount."
3. You have to make an assumption in 1995 question. You have to
calculate tax due each year. Think of two half policies.
It is given in 97 question [see (x)]. Otherwise you have to calculate
the taxes for three years.
4. This is an interesting one. If X1 and X2 two independent random
variables with equal mean and varience then Var(X1+X2) = Var(X1) +
Var(X2). But Var(X1+X1) = 4 Var(X1), they are not independent.
5. Stability constraints is based on loss ratio. To convert the losses
to loss ratio you have to divide by premium which is ELR/.6.
6. CAS solution is different. I am not sure which one is correct.
Good Luck.
Aru Sutha
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