CAS Exam 6C Spring 2015, Question 20
Study guide: Exam 6C
A property and casualty insurance company's bond portfolio as at December 31, 2014 is as follows:
| Bond | Market Value | Coupon Rate | Yield to Maturity | Maturity | Duration |
|---|---|---|---|---|---|
| A | $1,014,000 | 5.00% | 2.25% | 2015-06-30 | 0.500 |
| B | $1,006,000 | 3.00% | 2.40% | 2015-12-31 | 0.993 |
| C | $986,000 | 1.50% | 2.45% | 2016-06-30 | 1.489 |
The actuary has calculated the following net undiscounted provisions as at December 31, 2014:
| Accident Year | Undiscounted Case Reserves | Undiscounted IBNR |
|---|---|---|
| 2013 | $500,000 | $250,000 |
| 2014 | $1,500,000 | $675,000 |
| Total | $2,000,000 | $925,000 |
Part a (0.5 points)
Calculate the rate used to discount claim liabilities at December 31, 2014.
Part b (0.75 points)
If the undiscounted unpaid liabilities totaled $5 million, discuss whether the discount rate calculated in part a. above is appropriate.
Part c (1.25 points)
Identify five considerations used in determining the expected investment return rate for the calculation of present value.
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