CAS Exam 6C Fall 2014, Question 18
Study guide: Exam 6C
At December 31, 2012, the Appointed Actuary of a property and casualty insurance company selected the discount rate based on the short term government and investment grade bonds yield rate.
The following information is provided as at December 31, 2013.
| Asset class | Book Value | Selected Yield Rate | Average Duration |
|---|---|---|---|
| Government and investment grade bonds: Short Term | 25,000,000 | 2.0% | 2.5 |
| Government and investment grade bonds: Long Term | 10,000,000 | 3.5% | 4.5 |
| Cash and cash equivalents | 4,000,000 | 0.1% | 0.2 |
| Net policy liabilities | 40,000,000 | ? | 2.5 |
Part a (0.5 points)
Briefly describe one similarity and one difference between the valuation of claim liabilities on an actuarial present value basis and on a fair value basis.
Part b (0.75 points)
Fully explain how the Appointed Actuary would select the discount rate as at December 31, 2013.
Part c (0.5 points)
Discuss why the interest rate MfAD selected as at December 31, 2013 may change when compared to the prior year's selection.
No current syllabus covers this question; it is kept for the record.
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