Duration
Hello,
You mention in the portion for calculation of duration of premium liabilities that step 1) is the same as for the duration of claim liabilities.
However, isnt it different? For Premiums to get the PvFctr we simply just use the incremental paid %, however for claims to get PvFctr, do we not use the incremental paid % divided 1-% paid at 12 months? So aren't the PvFctrs different between the two? In 2019 Spring exam Question 13, that is how it is done and same with the examples shown in the CIA.MfAD text.
Thank you
Comments
Also another question, in Fall 2019 Question 20c) for the calculation of the PV Unpaid Cat loss, for the 0.4 I am not sure how that came to be. but referring to CIA. MfAD, there needs to be an adjustment for the % paid, no?
Thank you,
Hi,
For your first question: I'm assuming you're referring to this section in the wiki:
When I said the "same", I meant the idea of allocating the unpaid to future payment periods. You're right that for claim liabilities the timing is different because the starting point is 12 months whereas for premium liabilities the starting point is 0 months. That makes the details of the calculation slightly different so I changed the wording in the wiki to make that clearer.
For your second question: You are correct but if you look further down in the examiner's report, they mention that the statement of the question contains an error. Part (c) asked for the MCT ratio at Dec 31, 2018, but that was a typo. They meant to write Dec 31, 2019. At Dec 31, 2019, the cat claim would be aged 12 months so the first 60% would already be paid, according to the payment pattern. That's why they multiply the full cat amount of 55,000 by 0.4 to get the remaining unpaid amount at Dec 31, 2019.
Hi Graham,
Thank you for the response. Another question about the PVfctr for premium liabilities.
In 2019 Spring Q14, for the PV, it seems they are using the % remaining to calculate the PV Loss, however, in 2019 Fall Q14, it seems to use the % incremental paid to calculate the PV loss. Which should we be using? To my knowledge, I thought it should be the % incremental that is paid between each 12 month period.
Thank you
There is an error in the examiner's report solution to 2019.Spring Q14. Take a look at footnote 6a below the BattleTable and see if that answers your question. Here's the link to the CIA.PrLiabs BattleTable: