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Anthony,
Off the top of my head...couldn't find the page... I recall Feldblum
characterizing his model as between the 2 extremes of SAP and IRS earning
recognition. I think that's the default and I think that's why the problem
had that solution.
> -----Original Message-----
> From: Anthony Edwards [SMTP:Anthony_Edwards@tdi.state.tx.us]
> Sent: Friday, March 26, 1999 10:44 AM
> To: studygroup10@lists.casact.org
> Subject: Feldblum IRR: 1998 Part 10 Question 29a
>
> On page 55 of the Feldblum studynote, he illustrates the affect on IRR of
> not obtaining enough premium relative to expected losses. The example
> begins with $10,000 in premium and $12,000 in expected losses. With a
> reserves to surplus ratio of 2, he projects $2,000 from the investor to
> cover the u/w loss and $6,000 more to meet the surplus requirement
> (12,000/2), for a total investor cash flow of ($8,000) at time zero.
>
> The solution to the exam question asked in 1998 assumes recognition of the
> loss at the same time as recognition of the premium. The u/w loss is NOT
> funded at time zero. In fact, it is not fully funded until all of the
> premium is earned.
>
> In the face of ambiguity, what is the default treatment of expected u/w
> losses?
>
> Is the exam question simply more realistic?
>
> (Forget any premium deficiency reserve requirements that may come to SAP.)
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Anthony,
Off the top of my =head...couldn't find the page... I recall Feldblum characterizing his =model as between the 2 extremes of SAP and IRS earning =recognition. I think that's the default and I think that's why =the problem had that solution.
-----Original Message-----
From: Anthony Edwards =[SMTP:Anthony_Edwards@tdi.state.tx.us]
Sent: Friday, March 26, 1999 10:44 AM
To: studygroup10@lists.casact.org
Subject: = Feldblum IRR: 1998 Part 10 Question =29a
On page 55 of the Feldblum studynote, =he illustrates the affect on IRR of not obtaining enough premium =relative to expected losses. The example begins with $10,000 in =premium and $12,000 in expected losses. With a reserves to =surplus ratio of 2, he projects $2,000 from the investor to cover the =u/w loss and $6,000 more to meet the surplus requirement (12,000/2), =for a total investor cash flow of ($8,000) at time zero.
The solution to the exam question =asked in 1998 assumes recognition of the loss at the same time as =recognition of the premium. The u/w loss is NOT funded at time =zero. In fact, it is not fully funded until all of the premium is =earned.
In the face of ambiguity, what is the =default treatment of expected u/w losses?
Is the exam question simply more =realistic?
(Forget any premium deficiency reserve =requirements that may come to SAP.)