Surplus Adj in 2015 Fall Q18 compared to 2015 Spring Q26
I think I might be misinterpreting either the question or solution on these two problems.
2015 Fall Q18b requires (to calculate iris 2 and 7) that we calculate the change in surplus and the (first listed) examiner's solution lists the change to surplus as "Adjusted PHS = Current Year PHS as given + Commutation Price Paid – Ceded Reserves Commuted".
2015 Spring Q26b asks to calculate the change in surplus while including the effect of taxes and lists the change to surplus as "Surplus increase from cash received + Surplus reduced from reserves assumed + Surplus increased for tax reduction".
I understand that Q26b asks that we include the effect of taxes, but if these are essentially asking the same thing, why do we not include the commutation price as an increase to assets in the Adjusted PHS for Q18b (to match the solution from Q26b)?
thank you!
Comments
What they call "surplus increase from cash received" in 26b corresponds to what they call "commutation price paid" in 18b. Note that they both have the effect of increasing surplus. It is "paid" by the reinsurer, and "received" by the primary, but they refer to the same item.