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in BUS 3024S - Contingencies by (1.7k points)

Regarding question (b), do you never include the premium column in the insurers fund for conventional policies? (i.e. ones without the premium allocation). 

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1 Answer

+1 vote
by (2.9k points)
No. You usually do (and should)! 

This is an old exam/test question. Stick to the new layouts you have been taught in recent tests and the lecturer's slides. 

The reason, in this case, they don't add a column is there is assumed 100% allocation rate to the policyholder's fund. They didn't give any information about a split so it's assumed that the premium gets sent directly to the policyholder fund and the insurer's fund will see an income from the management charges. So the column would just be 0's all along if you did put in the column (which if you did in an exam wouldn't lose you marks or any real time loss so work doing regardless). The expected survival cost column is included because you need to check each entry so there is a calculation involved with these values.

Another thing to note is that just putting in these tables without any workings is a dodgy method and easy way to lose marks. Make sure you explicitly write the workings (even if it's formulae) in with your answers so you can get part marks. Remember that memo's are guides for markers and not always "the best answer" for students.
by (1.7k points)

Thanks for the response.

Intuitively I understand why the premium isn't included in the insurers fund as it is 100% allocated. But for instance, in 2019 Test 2 they did include it. What is the difference here? In both cases you are trying to work out the profit signature. 
And this is the insurer's fund isn't it?image

by (2.9k points)
There isn't a difference. One memo writer decided to put in in and the other didn't. Again, memo's are not written as perfect answers, they are written as guides for the marker so the marker would read either of these and understand how to mark this question. 

I think you might be overthinking all of this because in this very old past paper they didn't include it. So let me be clear: Put in the premium column always. If they give you an allocation, use it. If you are asked to work backwards, include it (like in this case). Just include it and ignore how they did it in this old past paper. In the exam, they will be very explicit in what they want from you and will explicitly tell you if all the premium is allocated to the policyholder's (or unit) fund.

The "insurer's fund" is a very old name for the non-unit fund so please don't taking layout tips from the old syllabus.