CAS Exam 9 Spring 2013, Question 8
Study guide: Exam 9
Given the following information:
- The projected calendar year loss reserve payout as of December 31, 2012 is:
| Accident Year | Calendar Year Payments ($000,000): 2013 | Calendar Year Payments ($000,000): 2014 |
|---|---|---|
| 2012 | $10 | $10 |
| 2011 | $10 |
- Losses are paid at the end of each year.
- Liabilities are discounted using the bond yield curve rates.
- The asset portfolio is composed of:
| Asset | Market Value ($000,000) |
|---|---|
| Cash | $25 |
| Bonds | $75 |
- The duration of cash is zero.
- The bond portfolio is composed of an equal investment in the following bonds:
| Time to Maturity (Years) | Coupon Rate | Face Value | Bond Price |
|---|---|---|---|
| 1 | 5% | $1,000 | $1,020 |
| 2 | 6% | $1,000 | $1,040 |
- Bond coupons are paid annually.
Calculate the duration gap of the market value surplus for the insurer as of December 31, 2012.
Part a (3.5 points)
No current syllabus covers this question; it is kept for the record.
Answer this question and see the worked solution