Return on Equity/Investment yield-MSA Legend

fedwal12fedwal12
in MSA.Ratios

In MSA Ratios, denominator only takes most recent Equity.
In the MSA Legend the formula for ROE takes the average of Total Equity.
In CCIR, denominator takes the sum of Equity at beginning of year and end of year

1.Is the intent of MSA Legend to override the MSA Ratios one? Or would they all be valid, given we had all the information to answer them all?

  1. For investment yield in MSA Legend what does Q1=4,Q2=2 mean?


Thanks

Comments

  • Staff-T1Staff-T1
    I'm traveling right now, and I'll get back to you when I'm back on the first week of January!
  • Staff-T1Staff-T1

    In terms of the difference between MSA ratios and MSA legend, it is not clear what should be the right denominator to use without the CAS explicitly saying anything about the relationship between both papers. We know that MSA legend is an update, so I would personally use the average of total equity, but using most recent equity would probably also be accepted because of the ambiguity here.

    In general, as long as a formula you have used can be tied into one of the papers, you are good to go and won't be penalized.

    Those numbers are meant to help you reconcile the MSA ratios to the CCIR returns. Specifically the validation file provided by the CAS.

    You sub the value of Q into the formula provided. For example if it is Q1, you sub Q = 4 into the formula provided in the rightmost column.

    To interpret the formula in the rightmost column, I'll give you an example.

    The number 1202230001 can be interpreted as follows:

    • Ignore the first number
    • This is page 20.22 of the core return file.
    • Look for the number (row) 300 on column E of page 20.22
    • Look for the number 01 on either column F or G
  • jxtang97jxtang97

    Hi Graham,

    Regarding "Q",

    does that mean, for investment yield, if we are given "Investment Return" as of end of Q1, we need to multiply that number by 4 in the numerator?

  • exam6addoilexam6addoil

    i am still confused with the quarter substitution, can you explain

  • Staff-T1Staff-T1

    You would multiply 1202230001 by 4 @jxtang97
    Based on the formula:
    If you are at Q1: your numerator would go from 1202230001 * Q to 1202230001 * 4
    If you are at Q2: your numerator would go from 1202230001 * Q to 1202230001 * 2
    and so on for Q3 and Q4
    @exam6addoil

  • exam6addoilexam6addoil

    why 4 2 4/3 1 for Q1 Q2 Q3 Q4?

  • Staff-T1Staff-T1

    Because to annualize Q1, you multiply by 4 since only one quarter has passed. To annualize Q2, you multiply by 2 since you are 50% done with the year, for Q3, you are 75% done with the year so you multiply by 4/3

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