CAS Exam 9 Spring 2013, Question 17
Study guide: Exam 9
Consider the following assumptions for a new policy:
| Item | Value |
|---|---|
| Expected losses | $100,000 |
| Expenses | $20,000 |
| Policyholder supplied funds as a ratio to premium | 43.6% |
| Tax rate | 35% |
| Before-tax return on invested assets | 6% |
| Target return on equity | 8% |
| Surplus-to-premium ratio | 2.0 |
| Surplus-to-equity ratio | 1.0 |
Part a (1 point)
Using the calendar year return on equity method, calculate the indicated price for the policy.
Part b (0.5 points)
Briefly describe two ways that risk is reflected in the calendar year return on equity method.
No current syllabus covers this question; it is kept for the record.
Answer this question and see the worked solution