CAS Exam 9 Spring 2019, Question 17
Study guide: Exam 9
Given the following:
- Premium to Surplus Ratio: 2.0
- Pre-tax Investment Yield: 4%
- Invested Assets are equal to Surplus
- Effective Tax Rate: 20%
- All policies are cancelled at the end of the 2nd policy term
- PVI/ PVE Discount rate: 10%
- Premium is earned, and expenses are incurred at the beginning of a term
- Losses are incurred at the end of a term
| Policy Term | Earned Premium | Incurred Loss | Incurred Expense |
|---|---|---|---|
| 1 | 1,000 | 800 | 400 |
| 2 | 600 | 300 | 20 |
Part a (1.5 points)
Calculate the return using the Present Value of Income Over Present Value of Equity (PVI / PVE) Method.
Part b (0.5 points)
The company's goal is to achieve a steady state calendar year Return on Equity (ROE) of 10%. Identify two conditions for the Calendar Year ROE % and the PVI/PVE % to be equal to each other.
No current syllabus covers this question; it is kept for the record.
Answer this question and see the worked solution