CAS Exam 9 Spring 2015, Question 25
Study guide: Exam 9
Given the following information for a Company,
As a % of surplus for 2014:
- Expense and claims inflation: 5%
- Increase in demand for insurance: 4%
- Increase in the aggregate reserves: 3%
- Retained return on capital: 12%
- Stockholders dividends: 5%
- Additional paid-in capital: 3%
Given also the following information about the Company and the industry:
| Financial characteristic | Company | Industry: Top Quartile Companies | Industry: Bottom Quartile Companies |
|---|---|---|---|
| (a) Market to Book Value, 2013 | 1.76 | 2.16 | 0.67 |
| (a) Market to Book Value, 2014 | 1.15 | 1.78 | 0.60 |
| (b) Earnings per Share, 2012 | 9.14 | 11.76 | 3.87 |
| (b) Earnings per Share, 2013 | 9.41 | 12.13 | 3.21 |
| (b) Earnings per Share, 2014 | 9.55 | 12.07 | 3.24 |
| (b) Earnings per Share, 2015 (Estimate) | 9.10 | 12.87 | 3.31 |
| (c) P/E Ratio, 2014 | 8 | 14 | 7 |
| (d) Return on Book | 15% | 16% | 6% |
| (d) Return on Market | 13% | 9% | 10% |
Part a (0.5 points)
Calculate the required rate of return.
Part b (1.5 points)
Discuss the Company's performance and outlook for the future relative to the industry using financial characteristics (a) through (d) above.
No current syllabus covers this question; it is kept for the record.
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