For part c, I did:
FCF = 9000+720+(800-200)-1000 = 9320
LRC excl. LC= 7400 from part b
LC = 9320-7400=1920
what’s wrong with this?
Nothing - I believe the CAS solution is incorrect and yours is correct
Why is the CAS solution incorrect? I actually thought it made sense..
The insurance acquisition cash flows should not be considered when calculating FCF as they have already been paid. The amortization of acquisition cash flows is not relevant for the FFCF
Actually your response answered why I was wrong lol. I redid my calculation by removing acquisition expenses out of FCF I get 1320.
I think the solution was calculating LC based on the definition of LC: expected net cashoutflows of the sum of FCF, acquisition expenses and other cash flows arising from the contracts. So the CAS answer seems right.
Nah, acquisition expenses must be accounted for when determining the FCF at initial recognition, but not for subsequent rollover. I think I wasn’t clear that it should only not be accounted for in subsequent measurements on my first response. I would recommend you take a look at the sample LRC calculation file from the CAS, specifically paying attention to how they calculate the FCF for initial recognition (Group A 24) and subsequent recognition (Group A 23). You’ll then see where the mistake is in the CAS’ solution. Your original solution is correct
Are you talking about Q17?
For part e, I calculated as: 12000*100%*0.75+300 and i got the same answer. But is this correct?
Doesn’t seem correct. Looks like it just so happened to be the same. The full correct formula is in the MCT insurance risk margin section