5.6.Noris

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Author:
Exam9
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67468
Filename:
5.6.Noris
Updated:
2011-02-19 15:01:49
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Noris
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Noris
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  1. Value of a P&C company
    TV = PF Equity + Franchise Equity
  2. PF Equity
    Net value of the currently booked assets & liabilities arising out of business already written
  3. Franchise Equity
    Value of the business not yet booked
  4. Managing mkt value surplus (MVS)
    DMVS = (DMVAMVA - DMVLMVL) / MVS
  5. Managing MVS: 3 targets
    • Duration gap of surplus: set it to zero, thus immunizing surplus from interest rate risk → large fluctuations, unduly restrictive
    • Duration gap of total return: set DGS = specific target
    • Duration gap of leverage: set DGEL = DMVS - DMVA
  6. Unexpected loss dvpmt: 3 ways to ensure investment return keep pace w/ inflation
    • Invest more heaviliy on common stock or real estate: too much non-interest volatility
    • Have assets that roll over frequently: requires short-term assets → deviation from D matching
    • Overstate liabilities: in form of contingency reserves

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