CCIR.ARinstr
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This is a long, boring set of instructions on how to do calculations and complete exhibits from the annual return. The syllabus lists sections I, III, IV, V, VI, but it's section VI that contains all the tested material. The other sections are informational. Anyway, simply trying to read these instructions is not the best way to learn the relevant material. Instead, we'll take a look at the types of exam problems that have been asked in the past. Once you have a handle on that, it's much easier to use the source paper as a reference. There are roughly half-a-dozen types of calculation questions in this paper. The excess/deficiency ratio shows up on virtually every exam.
There are no deep concepts here, but it helps if you've taken a university course in accounting. You're then at least familiar with the layout of a financial statement. If you haven't had a university accounting course, it's not a great problem, but it might be a little harder to understand the big picture. Nonetheless, there are only a small number of problem types you need to know. Forum
Contents
- 1 Pop Quiz
- 2 BattleTable
- 3 In Plain English!
- 4 BattleCodes
- 5 POP QUIZ ANSWERS
Pop Quiz
If you know the formulas you need for this Pop Quiz, that's great. If you don't, that's ok - just study the solution in the POP QUIZ ANSWERS at the bottom of this article. Calculating equity is a basic skill that you'll need both here and for other types of calculation problems on the exam. Equity will be covered in more detail in this article.
If an Insurer has:
- A(x) = 20m (Assets for year x)
- L(x) = 14m (Liabilities for year x)
Calculate E(x) (Equity for year x)
If the same Insurer has:
- NI(x) = 3m (Net Income)
- OCI(x) = 1m (Other Comprehensive Income)
Calculate: E(x-1) (Equity for year x-1)
BattleTable
Based on past exams, the main things you need to know (in rough order of importance) are:
- Excess(Deficiency) margin or ratio, both discounted & undiscounted versions (This is the most frequently asked question on Exam 6-Canada.)
- There is an extended forum discussion on this topic that you should make time to read once you've done a few more of the old exam problems. The topic of that discussion was problem 2017.Spring #11, but it also covers some confusing issues surrounding excess (deficiency) problems in general. (BIG shout-out to bkmlocks for delving into this in such great detail!)
investment income from insurance operations- net commissions exhibit 80.10
- investment yield
- equity, net income, comprehensive income
- loss ratio, combined ratio
Top Questions ← Questions you absolutely need to know!
| Questions held out from Fall 2019 exam: #14, 16, 18. But note that #18 is outdated because the topic of "Investment Income from Insurance Operations" has been removed from the syllabus. (Skip these now to have a fresh exam to practice on later. For links to these questions, see Exam Summaries.) |
Outdated → questions highlighted in orange are outdated.
reference part (a) part (b) part (c) part (d) E (2019.Spring #15) investment income:
- calculateExcess(Deficiency):
- discounted ratioExcess(Deficiency):
- interpretation (by OSFI)E (2018.Fall #16) ALPHABET CITY:
- calculate A,B,C,D,... 2E (2018.Fall #24) various calcs: 5
- NI, equity, MCT, UCAEMSA.Ratios MSA.Ratios E (2018.Spring #15) Excess(Deficiency):
- discounted marginSee CIA.MfAD E (2017.Fall #14) net income:
- calculate 3see Odo.FinReg E (2017.Fall #16) Excess(Deficiency):
- margin / ratioE (2017.Spring #11) Excess(Deficiency):
- margin / ratio 1E (2016.Fall #14) investment income:
- from operationsExcess(Deficiency):
- margin / ratioE (2016.Spring #14) Excess(Deficiency):
- undiscounted margininvestment income:
- calculate 4Excess(Deficiency):
- discounted marginE (2016.Spring #18) net commissions:
- calculatedefine:
- non-deferrable comm.E (2015.Fall #13) Excess(Deficiency):
- marginExcess(Deficiency):
- ratiosee CIA.Runoff E (2015.Fall #22) equity:
- calculatesee MSA.Ratios see MSA.Ratios E (2015.Spring #21) Excess(Deficiency):
- margin / ratioE (2015.Spring #22) investment income:
- from operationsE (2015.Spring #24) net loss ratio:
- calculatenet combined ratio:
- calculatenet income:
- calculateE (2014.Fall #16) net commissions:
- calculateE (2014.Fall #19) Excess(Deficiency):
- undiscounted marginExcess(Deficiency):
- discounted marginE (2014.Fall #20) investment income:
- from operationsE (2014.Spring #18) Excess(Deficiency):
- margin / ratioE (2013.Fall #21) Excess(Deficiency):
- margin / ratiodiscounting:
- 2 methodsE (2012.Fall #23) Excess(Deficiency):
- margin / ratio 6
- 1 Part of a larger problem on completing Exhibit 60.30
- 2 This is a very long problem that spans multiple concepts. See also CIA.MfAD and CIA.Accting. Note however that CIA.Accting has been deleted from the syllabus for the 2018.Fall exam so you will not be able to completey solve this problem using only the current syllabus. (The CIA.Accting reading covered the material on bonds.)
- 3 This problem requires knowledge from a reading that has been removed from the syllabus. In particular, the information on the Fair Value Option, Available-for-Sale assets, and Held-to-Maturity assets was on the CIA.Accting reading which has been removed. In particular, the calculation of OCI or Other Comprehensive Income relies on that removed reading. To do a problem like this in the future, you would have to be given the value of OCI directly. (This problem is part of a larger problem involving APV(claim liabilities) and bond values. (See also CIA.MfAD, CIA.Accting)
- 4 In part (b), the examiner's report mislabeled the years for which investment income was calculated as 2013 & 2014. Rather, they calculated investment income for 2014 and 2015, which is what you need for part (c). Note however there was also an error in the statement of the question. They wanted you to specifically exclude investment income from CY 2013. See this forum post. (shout-out to ZJ!) To summarize this problem, here are links to each part that explain the solution in more detail: part (a), part (b), part (c).
- 5 Part (a)(ii) of this problem uses information from a reading that's no longer on the syllabus. In particular, the formula for equity using the change in AOCI (Accumulated Other Comprehensive Income) is not in the current syllabus. (shout-out to exam6_pass!)
- 6 This problem presents the information in a format from an outdated version of the annual statement.
In Plain English!
Types of Problems
| Source Readings: BattleActs covers all material from past exams. It also covers significant material that has not appeared on past exams but that I've judged to be important. Still, it's a good idea to spend at least little time reviewing the source readings. You may have a different opinion on what's important and what you can skip. You cannot read all 2,500 pages in depth, but BattleActs give you the necessary background knowledge so that the time you do spend on the source readings will be much more efficient. |
There are 3 types of exam problems that have appeared on multiple exams:
- excess/deficiency ratio (appears on every exam)
- investment income from operations
- net commissions
I don't want you to do any BattleCards right now, but click here just to see the BattleCards for the old exam problems. Notice that they threw in a few non-calculation questions, but that's not the thrust of the paper. Aside from the 3 types of questions listed above, you also need to have the skills to calculate the following:
- equity
- net income
- comprehensive income
- net loss ratio
- net combined ratio
Calculating Equity
Sometimes you need the equity but are not provided with that information directly. The pop quiz above covered the 2 basic methods for calculating equity from other quantities. The first method was the Fundamental Accounting Equation, which states that:
Assets = Liabilities + Equity
The second method relies on knowing E (Equity) for the prior year, and CI (Comprehensive Income) for the current year x, then:
E(x) = E(x-1) + CI(x)
- It's also useful to know the formula relating CI to NI (Net Income) and OCI (Other Comprehensive Income) for a specific year:
CI = NI + OCI
- But, there is a potential complication with this method: (Shout-out to cgc2018 for noticing this!)
It assumes the company did not make certain kinds of capital transactions, like dividends for example. If dividends were paid, they must be subtracted from NI to arrive at the correct value for Equity.
- It would be wise to spend a moment looking at the following references:
- Relating NI to equity, assets, & liabilities
- E (2016.Fall #22)
- - this ROE (Return On Equity) exam problem, part (a.i), is discussed later in this article
- - it's a problem where you have to calculate equity using this second method describe above
- - but you have to subtract the dividends from NI to arrive at the correct value
- - this is because if you think of dividends as being paid out of income, this would also reduce the equity (dividends leave the company to go to shareholders)
A third method for calculating equity is when you have the required balance sheet items. Just sum the following quantities to get shareholder's equity:
- shares issued & paid (common & preferred)
- contributed surplus
- retained earnings
- reserves
- AOCI (Accumulated Other Comprehensive Income → includes unrealized gains/losses on OCI)
The first mini BattleQuiz has a problem where you have to calculate E(2014), the equity for year 2014, (2015.Fall #22a). You also have to calculate NI, but we haven't covered that yet, so I'm going to give you a hint and tell you that:
- NI(2014) = 1,460
Just do part (a) of this problem. It's easy if you already know NI(2014). We'll learn how to calculate NI from balance sheet items later. (The quiz also has a couple of non-calculation questions, but if this is your first time through this paper, you can skip those and come back to them later.)
Interesting side issue: There was a forum question on the difference between capital and surplus.
mini BattleQuiz 1 You must be logged in or this will not work.
Excess/Deficiency Ratio - Part 1
Easy Version
I mentioned above that this question appears on every exam. They vary the problem by providing the necessary information in different ways. Let's first cover the most basic version of the problem. In this version, based on (2015.Spring #21), you're given:
- investment yields for the relevant CYs
- paid loss triangle (incremental)
- unpaid loss triangle (discounted & including PfADs OR equivalently, APV)
You need to get those 3 items into your head. One of the variations on this is to provide the cumulative paid loss triangle instead of the incremental triangle. It's amazing how many people don't notice that in the heat of the exam! More than any other paper on the syllabus, this one is very much skills-based. That means you've got to practice. Start with easy versions of the problems and work your way up over the course of your studying.
There is an extended forum discussion on this topic that you should make time to read once you've done a few more of the old exam problems. The topic of that discussion was problem 2017.Spring #11, but it also covers some confusing issues surrounding excess (deficiency) problems in general. (BIG shout-out to bkmlocks for delving into this in such great detail!)
Here's the easy version of the excess (deficiency) ratio problem.
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Actual Exam Problems
All of the old exam problems on the excess/deficiency ratio are organized into the tables below. The mini BattleQuiz provides links to the actual problems and solutions. You should do these problems in the order they are listed since I've organized them from easy to hard.
problem difficulty PAID loss triangle format UNPAID loss triangle format must calculate... tricks 1 (2015.Spring #21) easy incremental discounted with PfADs ratio for AY 2012 as of CY 2014 none 2 (2014.Spring #18) easy incremental discounted with PfADs ratio for AY 2010 as of CY 2012 none 3 (2015.Fall #13) medium incremental discounted with PfADs ratio for AY 2012 as of CY 2014 - they leave out one of the paid loss values
- you have to solve a linear equation to get it
You should now scroll down to the next mini BattleQuiz and do problems #1,2,3. (You can then return to this point in the wiki article and continue with problems #4,5,6,7.)
The next group of excess/deficiency problems has three complications:
- you have to understand the 2 differences between the discounted and undiscounted excess (deficiency) ratio. (shout-out to jptardif2!)
- [1] investment income is not included in the numerator of the formula for excess(deficiency) ratio
- [2] do not use APV of the unpaid amounts (instead, use undiscounted case reserves + undiscounted IBNR)
- (there is a brief forum discussion that demonstrates this difference in the exam problem 2014.Fall #19a)
- the paid and unpaid data is provided in a less straightforward way
- you have to read the question very carefully for which AY and CY they want you to do the calculation for (it's very easy to get tripped up on that)
Note: The solution in the examiner's report for problem #4 below, (2016.Spring #14a), is not very clear. For that reason, I've created a separate wiki page with an Explanation for 2016.Spring 14a.
problem difficulty PAID loss triangle format UNPAID loss triangle format must calculate... tricks 4 (2016.Spring #14a) medium incremental undiscounted undiscounted ratio for AY 2012 as of CY 2015 - there are 4 AY/CY years instead of 3 5 (2016.Spring #14bc) see footnotes1,2 medium incremental discounted with PfADs (APV) discounted ratio for AY 2013 as of CY 2015 - there are 4 AY/CY years instead of 3
- they ask for a different AY from part (a)6 (2014.Fall #19a) harder cumulative case reserves, undiscounted IBNR undiscounted ratio for AY 2012 as of CY 2013 - paid losses are cumulative (not incremental)
- must calculate unpaid as case + IBNR7 (2014.Fall #19b) harder cumulative case reserves, undiscounted IBNR, effect of discounting discounted ratio for AY 2011 as of CY 2013 - paid losses are cumulative (not incremental)
- must calculate unpaid as case + IBNR + effect of discounting
- they ask for a different AY from part (a)
- 1 User chrisboersma (Thx!) noticed an error in the CAS solultion for part (b). Their calculation labeled the investment income as being for 2013 & 2014, but it should have been 2014 & 2015. (The numbers are correct - it's just the labels that are wrong.)
- 2 To summarize this problem, here are links to each part that explain the solution in more detail: part (a), part (b), part (c).
You should now scroll down to the next mini BattleQuiz and do problems #4,5,6,7. (You can then return to this point in the wiki article and continue with problems #8,9.)
These last 2 problems are recent. Since the excess (deficiency) ratio problem has been asked so many times, they have to come up with ways to make it suck even harder. :-)
problem difficulty PAID loss triangle format UNPAID loss triangle format must calculate... tricks 8 (2017.Fall #16) hard cumulative discounted with PfADs (APV) margin for CY 2016 - paid losses are cumulative (not incremental)
- they ask for the margin not the ratio
- must sum across all AYs
- must know that margin for AY 2016 is zero9 (2016.Fall #14) crazy hard!! not given as a triangle discounted but not given as a triangle excess amount for CY 2015 - info not given in triangle format
- they ask for the margin not the ratio
- different method for calculating investment income
- must sum across all AYs
- full explanation in next section
Note that you really can't do problem #9 (2016.Fall #14) until you know how to calculate investment income from operations given balance sheet amounts. This is what we'll cover in the next section before returning to this crazy hard excess (deficiency) ratio problem!
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Investment Income from Insurance Operations
This topic is no longer on the syllabus and has been archived: Investment Income from Insurance Operations (Archive)
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Excess/Deficiency Ratio - Part 2
Explanation of 2016.Fall #14b
There is a forum discussion on this question that might be helpful once you've attempted the problem yourself and read through the solution below. There are 2 things about this problem that are different from most previous exam questions on excess/deficiency:
- They ask for the amount here not the ratio.
- The time period is a calendar year, not an accident year.
Recall the formula for the excess (deficiency) ratio:
- ExRatio = [ APV(beg) - APV(end) - Pd(All) + ii ] / APV(beg)
But, for point #1 above, if we want only the amount then we only need the numerator:
ExAmt = [ APV(beg) - APV(end) - Pd(All) + ii ]
Also, this formula applies to 1 accident year across all CYs. Point #2 above is asking for the opposite: 1 CY across all accident years. We need to do the calculation for each accident year individually (for the given CY only) then sum. For this type of question, the data is normally given in a triangle, so I find it helpful to rewrite the first table as 2 separate triangles as in the BattleCard question referred to above:
Paid Loss during CY
Accident Year (AY) 2012 2013 2014 2015 2012 -- -- -- 600 2013 -- -- 650 2014 -- 1,200 2015 5,000
APV (UCAE & IBNR) at END of CY
Accident Year (AY) 2012 2013 2014 2015 2012 -- -- 2,500 2,000 2013 -- 4,500 3,800 2014 5,000 4,000 2015 5,300
Let's now do the calculation for AY2012 and CY2015
- ExAmt
- = APV(beg) - APV(end) - Pd(All) + ii
- = 2,500 - 2,000 - 600 + ii
- = -100 + ii
- The investment income for this period is:
- ii
- = 5% x avg(2500, 2000)
- = 112.5
- So the result is: ExAmt (AY2012, CY2015) = 12.5
Similarly
- ExAmt (AY2013, CY2015) = 257.5
- ExAmt (AY2014, CY2015) = 25
For AY2015, there is no actual calculation. We need at least 2 data points to calculate ExAmt as above and at year-end 2015, we only have 1 data point for AY2015. Our assumption has to be that the reserve of 5300 is accurate and the redundancy/deficiency is 0. (if we didn't think 5300 was accurate, we would have set the reserve to something else. Also, some people tried to use a reserve value of 0 for AY2015 at year-end 2014, but that doesn't makes sense. That reserve isn't 0 at that point - it simply doesn't exist and can't be used in a calculation.)
- ExAmt (AY2015, CY2015) = 0
| Sum these quantities to get the final answer: 295 = 12.5 + 257.5 + 25 + 0 |
Please note: This problem was different from previous exam problems on this topic BECAUSE you were asked for:
- an AMOUNT, not a ratio
- a CALENDAR YEAR value not an accident year value
MAKE SURE YOU CLEARLY UNDERSTAND THIS DIFFERENCE!!
| CHALLENGE! |
Pop Quiz A: Suppose this question HAD asked for the excess (deficiency) ratio for AY2012 as of yr-end 2015. Could you calculate it from the given information? Why or why not?
- Answer: No, there are missing entries in the triangle. On the row for AY2012, you need paid loss for CY2013 & CY2014. Same for the unpaid triangle. (If you don't see this, use the mini BattleQuiz below to review the BattleCard from CCIR.ARINSTR: Excess Ratio (page 60.41) EASY VERSION)
Pop Quiz B: Given ii(CY2014) = 145, calculate APV(AY2012 @ 12/31/2013)
- Answer: 3300 (Solve for U: 5% x (2500 + U)/2 = 145).
| You can now go back to mini BattleQuiz 3 and do problem #9 from the Excess (Deficiency) Ratios - Part 1. |
Net Commissions
Note that the solution in the examiner's report for the net commissions problem (2014.Fall #16) is all messed up. The numbers they provide in the table are not internally consistent, and you get a different answer depending on how you approach it.
A net commissions problem appeared again on (2016.Spring #18a) but this time the CAS cleaned up their act and got it right. It isn't a very hard problem, provided you memorized the layout of Exhibit 80.10 from the quarterly return. (Note that exhibit 80.10 does not appear in the sample annual return referenced in OSFI.AR2. It only appears in the sample quarterly return OSFI.AR1.)
Click for a helpful forum discussion on the reasoning behind the net commissions formula in column (10) of the exhibit.
See also this forum discussion for further information about the following more recent exam problem on contingent commissions and DPAE:
- E (2019.Fall #14)
There is a net commissions problem in the BattleActs Practice Exam Question #16.
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Other Basic Accounting Formulas
There are a few more basic accounting formulas that you will often need to solve problems from this paper. Note that these metrics normally pertain to a particular AY (not a single point in time.):
metrics formula NLR (Net Loss Ratio) = APV(incurred claims) / EP NCOR (Net Combined Operating Ratio) = [ APV(incurred claims) + operating expenses ] / EP (operating expenses exclude investment expenses.) NI (Net Income) = (1 – tax rate) x [ (U/W Income) + (Investment Income) + (Other Income) ]
- The NI formula for net income in the above table works if you're given the tax rate. If you were instead given total tax, you would subtract total tax from the income amounts to get net income. In the case, "net" means net of taxes. There is further discussion of this forum post. (shout-out to exam6_pass!)
- Note that these formulas were covered on the Exam 5 syllabus, but without the "APV" part. Also, some of the quantities in the above formulas can be broken down further. (Recall that in general, income equals revenue – expenses, whether it's U/W or investment income)
supporting metrics formula APV(incurred claims) for a particular period = (paid loss in period) + change [ APV(unpaid claims) ] EP for a particular period = WP – change(UEP) U/W Income for a particular period = EP – APV(incurred claims) – operating expenses (operating expenses exclude investment expenses.) Investment Income for a particular period = (investment revenue) – (investment expenses)
The "particular period" is usually 1 year. Note also that the change in the formulas above generally means (current year-end) – (prior year-end).
Here is a PDF with practice problems using the above formulas similar to (2015.Spring #24). In this problem, you're given the investment revenue. But contrast this with problems like (2017.Fall #14a) where they give you asset/bond values and make you calculate the investment income. But that's a topic from CIA.Accting which has been removed from the syllabus so you don't have to worry about it.
Once you're good at calculating NLR, NCOR, and NI, have a crack at the mini BattleQuiz below! (Either that or take a break with with Alice and lcparga at the actuarial cafe. Breaks are just as important as study time! Shout-out to lcparga for inspiring this new section! He deserves a nice hot double-double! Update: lcparga likes his coffee black.)
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Alphabet City
Note that certain portions of the 2018.Fall problem contain material from CIA.Accting that is no longer on the syllabus as of 2019.Fall. That reading covered information about bond valuation. That means you won't be able to completely solve this problem using the current syllabus but it's still a valuable problem to study.
When I was in university, Alice dragged me to a double-feature at the Revue Cinema on Roncesvalles Ave. We saw 2 New York City mafia films. The first one was Mean Streets with Robert DeNiro & Harvey Keitel. It was A-W-E-S-O-M-E. The second one was Alphabet City. It S-U-C-K-E-D, much like the exam problems listed below: (These problems all ask you to calculate unknown quantities A,B,C,D...)
- E (2018.Fall #16)
- E (2015.Spring #25)
- E (2014.Spring #17)
- E (2013.Fall #21)
- E (2012.Fall #22)
- E (2012.Fall #23)
Note that not all of the problems used letters for the unknowns. Sometimes the examiners just put questions marks to indicate the unknown quantities in the tables. (Lazy much?) These types of problems used to appear regularly, but then there was a longish gap between 2015.Spring and 2018.Fall. We're going to cover #16 on the 2018.Fall exam in detail. It's long and very difficult. It was one of the 3 worst done questions on the 2018.Fall exam, the other poorly done questions being #17 and #28. The average score on #16 was roughly 1.50 - 1.75 out of a possible 4.75. (See Exam Summaries for a listing of problems from that exam.)
This 2018 problem was worth 4.75 points, the most of any question on the exam. If you follow the time management tips from On BattleDay, this is the first problem you would do. There is over a page of given information and it takes time to wrap your head around it. Ideally, you would spend the whole 15-minute reading period thinking through it so that when the exam starts, you could immediately start calculating. This is not the type of problem you want to be doing 2-3 hours into the exam when your brain is starting to get fried. So, let's get started. Click the link below and spend a few moments looking at it but don't do any calculations yet.
- E (2018.Fall #16)
In that mountain of information, my first foothold was noticing that they provided the following:
- paid & unpaid triangles
- a payment pattern
- MfADs
This is what you need to calculate APV of the claims liabilities. Even if you had no idea how to solve the problem, you could start by calculating the APV of the claims liabilities for AY 2016 and 2017. But wait, there's one more thing - you need the discount rate, which isn't given. They do, however, provide:
- bond yields
You can use the information about the bond portfolio to calculate the discount rate. This is easy but the explanation is in a wiki article for a reading that is no longer on the syllabus. That wiki article has been archived but you can still read this short explanation for Calculating a Discount Rate by clicking the link. It's basically just a weighted average. Anyway, that's how you get started. I wrote out all the details in this 5-page pdf:
→ Note that at the top of the 3rd page, which is the 2nd page of the solution, there is a typo. Instead of A & B are very easy: (B is the net claims liability...). It should say (B is the gross claims liability...)
→ This is something you might not notice but the given information in these practice problems is not always internally consistent. You can still solve the problem using the given method however. There is a brief forum discussion about this.
Shout-out to DulcineaDelCA, sidsim, jaylow96, Rabi, future beast-slayers!
And here are some practice problems with different numbers:
→ same typo in these random problems as noted above...
Regarding the other Alphabet City problems, I don't think they're quite as hard as the 2018.Fall version. See if you can work your way through them.
Also, I've noticed a pattern in how the CAS creates new types of exam questions. Often, a new type of question is introduced and is poorly done by most candidates (because it's very different from anything that's appeared before). Then a similar question reappears on subsequent exams and people get better and better at solving it. I don't know if this will happen with this particular Alphabet City question, but it's a good one to practice on because it covers so much ground. You have to understand a lot of things about financial statement quantities.
Slay the beast!
BattleCodes
- Memorize:
- The various formulas for E(x)
- Formula for Excess/Deficiency Ratio (This is asked on EVERY exam, with different combinations of given info)
- Conceptual:
- definition of 'non-deferrable commission'
- how to account for the time value in money in calculating the ExRatio
- Calculational:
- E(x), given Balance Sheet info and/or Income Statement info from current or prior years
- ExRatio (Excess/Deficiency Ratio)
- Investment Income from Insurance Operations
- NLR (Net Loss Ratio), NCOR (Net Combined Operating Ratio), NI (Net Income)
- Net Commissions (Exhibit 80.10 in the annual return)
- This is covered in the Calculation Problems and in old exam problems. Practice makes perfect! (Not as much memorization here as in other parts of the syllabus.)
- Expect about 3 pts from this paper on the exam
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POP QUIZ ANSWERS
- E(x) = A(x) - L(x) = 20m - 14m = 6m
- Since E(x) = E(x-1) + NI(x) + OCI(x), simple substitution yields E(x-1) = 2m
