Actuarial Outpost
 
Go Back   Actuarial Outpost > Exams - Please Limit Discussion to Exam-Related Topics > SoA > Individual Life and Annuities Track > Life Finance and Valuation Exam
FlashChat Actuarial Discussion Preliminary Exams CAS/SOA Exams Cyberchat Around the World Suggestions



Life Finance and Valuation Exam Old Individual Life and Annuities Forum

Reply
 
Thread Tools Search this Thread Display Modes
  #1  
Old 08-15-2019, 10:25 PM
MISTA JOJO MISTA JOJO is offline
Member
SOA
 
Join Date: Sep 2011
Studying for Life
Posts: 266
Default 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?
Reply With Quote
  #2  
Old 08-16-2019, 05:00 PM
E's Avatar
E E is offline
Eddie Smith
SOA
 
Join Date: May 2003
College: UGA
Posts: 9,350
Default

Looks like maybe you just got the sign reversed. Since the unrealized gain is profit-neutral, 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
__________________


Learn how FSA exams are different from the prelims

We have your exam covered:

LPM | LFV-U | LFV-C | LAM | ERM | QFI Quant | QFI PM | QFI IRM | G&H DP | G&H FV | G&H Sp

Check out our Technical Skills Course and our new R Course!

Connect on Twitter, Facebook, & LinkedIn
Reply With Quote
  #3  
Old 08-18-2019, 10:23 PM
FrancisY FrancisY is offline
Member
SOA
 
Join Date: Apr 2013
Posts: 868
Default

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(t-1) + DAE(t) x (1+i)] - k-factor x EGP'(t)
Primary DAC(t) = [DAC(t-1) + DAE(t) x (1+i)] - k-factor x EGP(t)

going back to the original equation...
Shadow DAC Adjustment(t) = {[DAC(t-1) + DAE(t) x (1+i)] - k-factor x EGP'(t)} - {[DAC(t-1) + DAE(t) x (1+i)] - k-factor x EGP(t)}
Shadow DAC Adjustment(t) = k-factor x [EGP(t) - EGP'(t)]
Shadow DAC Adjustment(t) = k-factor x [-IGL]

Shadow DAC Adjustment(t) = 0.4 x [-5] = -2
__________________
Francis

www.pakstudymanual.com
PAK Study Manual Packages/Seminars for LFV-US / LFV-CA / LPM / LAM Fall 2019

LPM: Sample
LFV U.S.: Sample
LFV Canada: Sample
LAM: Sample

Should you have any questions, please send us an email.
Reply With Quote
  #4  
Old 08-20-2019, 06:13 PM
MISTA JOJO MISTA JOJO is offline
Member
SOA
 
Join Date: Sep 2011
Studying for Life
Posts: 266
Default

Quote:
Originally Posted by FrancisY View Post
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(t-1) + DAE(t) x (1+i)] - k-factor x EGP'(t)
Primary DAC(t) = [DAC(t-1) + DAE(t) x (1+i)] - k-factor x EGP(t)

going back to the original equation...
Shadow DAC Adjustment(t) = {[DAC(t-1) + DAE(t) x (1+i)] - k-factor x EGP'(t)} - {[DAC(t-1) + DAE(t) x (1+i)] - k-factor x EGP(t)}
Shadow DAC Adjustment(t) = k-factor x [EGP(t) - EGP'(t)]
Shadow DAC Adjustment(t) = k-factor x [-IGL]

Shadow DAC Adjustment(t) = 0.4 x [-5] = -2
Thanks, that all makes sense to me. Strange that I couldn't get it to work out prospectively though.
Reply With Quote
Reply

Tags
adjustment, dac, lfv, shadow

Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off


All times are GMT -4. The time now is 01:30 AM.


Powered by vBulletin®
Copyright ©2000 - 2019, Jelsoft Enterprises Ltd.
*PLEASE NOTE: Posts are not checked for accuracy, and do not
represent the views of the Actuarial Outpost or its sponsors.
Page generated in 0.17164 seconds with 11 queries