Think of the math this way:
IA = IL + S
so IA/S = IL/S + 1
also IL/P = 1.3
so IL = 1.3P
so IA/S = 1.3P/S + 1
and you can go on to solve the TRR equation from there.
-----Original Message-----
From: David Kennerud [SMTP:kennerud@concentric.net]
Sent: Wednesday, March 31, 1999 9:57 AM
To: studygroup6@lists.casact.org
Subject: Re: D'arcy trr
The formula from D'arcy gives a return on surplus. If a problem asked for
return on equity, you would need to be given the relationship between
surplus and equity.
Generally speaking, investible assets will consist of two pieces: surplus
and loss reserves. The 1986 problem uses the term investible liabilities
for the latter, but they are the same thing, since loss reserves are on the
liability side of the balance sheet. (I suppose it's possible that some
portion of the loss reserves might not be available for investment, or
there could be liabilities other than loss reserves which are investible,
so in these cases the term investible liabilities - referring to the
investible portion of all liabilities - might be more accurate, but I think
it's unlikely this would ever come up in a problem.)
Hope this helps.
Dave
At 07:10 PM 3/30/99 -0800, you wrote:
>
>D'arcy gives the formula trr=(ia/s)*irr +(p/s)*upm;
>
>Is trr, total rate of return properly considered a rate of return based
>on owner's equity? or a return on surplus?
>
>Well this formula is easy, but consider 2 old questions
>
>1986. an insurer writes business with a ratio of INVESTIBLE LIABILITIES
>to annual earned premium of 1.3,.....etc
>
>the trick to solving this was to use
>INVESTIBLE ASSETS (IA as required for trr) = INVESTIBLE
>LIABILITIES + SURPLUS, or IA= (1.3P +S).
>
>My question, anyone familiar with investible liabilities? Is this
>referred to in page 546 of Foundations?
>
>Also from 1990 a problem was given which stated loss reserves are equal
>to written premium. The trick on that one was INVESTIBLE ASSETS= surplus
>+ loss reserves
>so IA = S +P by substitution for loss reserves.
>Can anyone comment on these calculations for investible assets required
>in the formula, or think of other variations?
>thanks for your help.
>
>Bill.
>
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