CAS Exam 9 Spring 2014, Question 24
Study guide: Exam 9
Industry data for a single line of business over a three year period is as follows.
| Year | Net Written Premiums | Loss & Expense Reserves |
|---|---|---|
| 1 | $100,000,000 | $50,000,000 |
| 2 | $102,000,000 | $53,550,000 |
| 3 | $104,040,000 | $57,352,050 |
- Net written premium and loss and expense reserves are stated on a nominal basis
- Inflation is 2% annually
- Surplus is adjusted at the beginning of each year to support business expected to be written in the coming year
Part a (2 points)
Calculate the required percentage change in surplus for the coming year.
Part b (1 point)
A publicly traded insurance company has $20 million of surplus at end of year 3 and will:
- Raise $1,000,000 in paid-in-capital.
- Pay $1,500,000 in shareholder dividends.
Calculate the required rate of return for this insurance company.
No current syllabus covers this question; it is kept for the record.
Answer this question and see the worked solution