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Life Finance and Valuation Exam Old Individual Life and Annuities Forum 

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#1




Spring 2015 LFV US #1C
Sorry if the notation is inconsistent.
Here's my solution: K = 60/150 = 0.4 DAC(1) = K*PV1(EGP)PV1(Deferred Expenses) = 0.4*30  4 = 8 DAC'(1) = K*[PV1(EGP) + IGL(1)]  PV1(Deferred Expenses) = 0.4*(30 + 5)  4 = 10 Shadow DAC Adjustment(1) = DAC'(1)  DAC(1) = 10  8 = 2 However, the solution shows 2 for the shadow DAC adjustment. Where did I go wrong? 
#2




Looks like maybe you just got the sign reversed. Since the unrealized gain is proﬁtneutral, there is no need to recalculate k, meaning we can take the shortcut approach. The shadow DAC adjustment is intended to partially oﬀset the UHG of +5, so the adjustment needs to be negative.
Shadow DAC Adj = −k × UHG = −0.4 × 5 = −2 
#3




Here's how I worked it:
EGP'(t) = IGL + EGP(t) EGP'(t) = EGP assuming unrealized gains/losses (IGL) are recognized Positive IGL represents a gain Then... Shadow DAC Adjustment(t) = Shadow DAC(t)  Primary DAC(t) where, Shadow DAC(t) = [DAC(t1) + DAE(t) x (1+i)]  kfactor x EGP'(t) Primary DAC(t) = [DAC(t1) + DAE(t) x (1+i)]  kfactor x EGP(t) going back to the original equation... Shadow DAC Adjustment(t) = {[DAC(t1) + DAE(t) x (1+i)]  kfactor x EGP'(t)}  {[DAC(t1) + DAE(t) x (1+i)]  kfactor x EGP(t)} Shadow DAC Adjustment(t) = kfactor x [EGP(t)  EGP'(t)] Shadow DAC Adjustment(t) = kfactor x [IGL] Shadow DAC Adjustment(t) = 0.4 x [5] = 2 
#4




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adjustment, dac, lfv, shadow 
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