CAS Exam 9 Spring 2018, Question 17
Study guide: Exam 9
Single Writing Company (SWC) is considering writing a policy with the following characteristics:
| Item | Value |
|---|---|
| Premium (in $000's) | 100 |
| Loss (in $000's) | 72 |
| Expense (in $000's) | 30 |
| Investment Return Rate | 6% |
| Tax Rate | 35% |
| Surplus as % of Present Value of Unpaid Loss | 30% |
| PV Loss Discount for Surplus Calculation | 8% |
| PVI/PVE Discount Rate | 10% |
Premium, losses, expenses, and investable assets are given:
| Year | Earned Premium | Incurred Losses | Incurred Expenses | Paid Losses | Investable Assets |
|---|---|---|---|---|---|
| 0 | 0 | 0 | 18 | 0 | 120 |
| 1 | 100 | 72 | 12 | 36 | 75 |
| 2 | 0 | 0 | 0 | 36 | 0 |
| Total | 100 | 72 | 30 | 72 | 195 |
Part a (2.75 points)
Calculate PVI/PVE for this policy.
Part b (0.25 points)
Briefly explain under what circumstances PVI/PVE will equal IRR.
No current syllabus covers this question; it is kept for the record.
Answer this question and see the worked solution