APPLICATIONOFBASICACTUARIAL
　　PRINCIPLES
　　SECTIONA-WRITTENANSWER
　　COURSE5:Fall2005-1-GOONTONEXTPAGE
　　MorningSession
　　**BEGINNINGOFEXAMINATION**
 
　　COURSE5
　　MORNINGSESSION
　　1.(4points)Describethereasonsanindividualorabusinesswouldpurchase:
　　(a)lifeinsurance
　　(b)propertyandcasualtyinsurance
　　2.(4points)Indevelopingmedicalclaimscostsforagrouphealthplan:
　　(a)Describethefactorstoconsiderinselectingtheappropriatedatasources.
　　(b)Listtheconsiderationsinassessingthequalityofdataobtainedfromoutside
　　sources.
　　(c)Describeconsiderationswhennormalizinghistoricaldata.
　　COURSE5:Fall2005-2-GOONTONEXTPAGE
　　MorningSession
　　3.(6points)Giventhefollowinginformation:
　　AnnualNormalRetirementBenefit:1.5%offinalearningstimesservicefromhire
　　EarlyRetirementEligibility:Age60
　　EarlyRetirementBenefit:RetirementBenefitaccruedtodate,reducedby
　　1/15foreachyearbeforeage65
　　NormalformofPayment:LifeAnnuity,payablemonthly
　　CostMethod:ProjectedUnitCredit
　　ActuarialAssumptions:
　　Interest6%
　　SalaryIncreases4%
　　Pre-retirementdeathandterminations:None
　　(12)
　　a????62:11.61
　　(12)
　　a????65:10.87
　　Participantdata
　　EmployeeBirthdateHiredate2004earnings
　　Brown1/1/19651/1/200034,000
　　Smith1/1/19401/1/199560,000
　　Inprioryears,theassumedretirementagewas65.EffectivewiththeJanuary1,2005
　　actuarialvaluation,theassumedretirementageischangedto62.
　　CalculatethechangeintheactuarialliabilityasofJanuary1,2005duetothechangein
　　theassumedretirementage.
　　Showallwork.
　　4.(4points)Describetheexpensephilosophiesusedinpricingindividuallifeinsurance.
　　COURSE5:Fall2005-3-GOONTONEXTPAGE
　　MorningSession
　　5.(6points)
　　(a)Explainwhymortalityexperiencevariesfromcompanytocompany.
　　(b)Describehowbreakingagroupoflivesintoriskclassesaffectsassumptionsother
　　thanmortality.
　　(c)Youaredividinganexistinggroupintotworiskclassificationsandaregiventhe
　　followinginformation:
　　BeforeRiskClassificationAfterRiskClassification
　　TotalGroupGroupAGroupB
　　MortalityratioWeightWeightWeight
　　50%25.025.00.0
　　100%42.536.56.0
　　150%37.50.037.5
　　175%26.00.026.0
　　Product:Two-yeartermlifeinsurancepolicy
　　Faceamount:100,000
　　(q(50):0.0035
　　q(51):0.0039
　　Interest:6%perannum
　　Expenseloading:0%
　　Calculatethesinglepremiumissuedtoa50yearoldfromGroupBbeforeand
　　afterriskclassification.
　　Showallwork.
　　COURSE5:Fall2005-4-GOONTONEXTPAGE
　　6.(7points)
　　(a)Explainwhyitisdifficulttoapplythegeneralprinciplesofincometaxationtothe
　　lifeinsuranceindustryanditsproducts.
　　(b)DescribethepolicyholdertaxationoflifeproductsinCanadaandtheU.S.
　　7.(4points)
　　(a)Describethetypicalapproachesforprovidingold-agefinancialsecurity.
　　(b)Commentonthedifferencesbetweenpay-as-you-goandfundedfinancingof
　　publicplans.
　　8.(5points)
　　(a)Describetheproductfeaturesofaccumulationannuities.
　　(b)Describethetypesofincomeannuities.
　　COURSE5:Fall2005-5-GOONTONEXTPAGE
　　MorningSession
　　USETHISPAGEFORYOURSCRATCHWORK
　　COURSE5:Fall2005-6-GOONTONEXTPAGE
　　MorningSession
　　COURSE5
　　MORNINGSESSION
　　APPLICATIONOFBASICACTUARIAL
　　PRINCIPLES
　　SECTIONB-MULTIPLECHOICE
　　COURSE5:Fall2005-7-GOONTONEXTPAGE
　　MorningSession
　　1-6.Eachofquestions1through6consistsoftwolists.Inthelistattheleftaretwoitems,
　　letteredXandY.Inthelistattherightarethreeitems,numberedI,IIandIII.ONEof
　　thelettereditemsisrelatedinsomewaytoEXACTLYTWOofthenumbereditems.
　　Indicatetherelateditemsusingthefollowinganswercode:
　　LetteredItem
　　IsRelatedtoNumberedItems
　　(A)
　　X
　　IandIIonly
　　(B)
　　X
　　IIandIIIonly
　　(C)
　　Y
　　IandIIonly
　　(D)
　　Y
　　IandIIIonly
　　(E)
　　Thecorrectanswerisnotgivenby(A),(B),(C)or(D).
　　1.X.FlexiblePremiumUniversalLifeI.Lowercapitalrequirements
　　Y.VariableUniversalLifeII.Competitionhasamajoreffecton
　　thecreditedinterestrate
　　III.Pricedwithalowerprofitmargin
　　2.X.MarkovStateTransitionI.Designedforadata-poor
　　environment.
　　Y.RationalArtificialIntelligenceII.Utilizesbenchmarkdatabasefuture
　　costsdevelopedthroughaprocessof
　　triangulation.
　　III.Identifiespatternsofunderlyingdata
　　tofacilitatethepredictionoffuture
　　costs.
　　COURSE5:Fall2005-8-GOONTONEXTPAGE
　　MorningSession
　　3.X.Medicare–HospitalInsuranceI.Deductibleadjustedannually
　　Y.Medicare–SupplementaryMedical
　　Insurance
　　II.Coinsurance
　　III.PayrollTax
　　4.X.HMOI.Coversalocalservicearea
　　Y.PPOII.Doesnottaketheinsurancerisk
　　III.Performsutilizationreviews
　　5.X.PreferredrisksI.Higherplacementrate
　　Y.ResidualrisksII.Higherlapserates
　　III.Higheraveragepolicysize
　　6.X.NormalcostI.Pastservicebenefits
　　Y.SupplementalcostII.Futureservicebenefits
　　III.Retroactiveplanamendments
　　COURSE5:Fall2005-9-GOONTONEXTPAGE
　　MorningSession
　　7.Tolimitanti-selectionongroupsupplementallifeplans,insurersuseallofthe
　　followingEXCEPT:
　　(A)Limitedcoverageamountswithoutevidenceofinsurability
　　(B)Suicideexclusion
　　(C)StatementofGoodHealthrequiredforcertainamounts
　　(D)Minimumparticipationrequirementsthatarehigherthanforbasicgrouptermlife
　　(E)Step-ratedpremiumstructure
　　8.InCanada,theappointedactuaryisrequiredtofileareportwiththeannualstatements
　　thatprovidestheregulatoryauthoritieswithallofthefollowingEXCEPT:
　　(A)Adescriptionofanyapproximationsused
　　(B)Asignedstatementthataffirmscompliancewiththegenerallyaccepted
　　accountingprinciplespublishedbytheCanadianInstituteofChartered
　　Accountants(CICA)
　　(C)Anychangesintheassumptionsfromthepriorannualfilingandtheeffectthereof
　　(D)Acompletejustificationforeachassumption
　　(E)Asignedcopyoftheopinionoftheappointedactuary
　　COURSE5:Fall2005-10-GOONTONEXTPAGE
　　MorningSession
　　USETHISPAGEFORYOURSCRATCHWORK
　　COURSE5:Fall2005-11-GOONTONEXTPAGE
　　9-13.Eachofquestions9through13consistofanassertionintheleft-handcolumnanda
　　reasonintheright-handcolumn.Codeyouranswertoeachquestionbyblackening
　　space:
　　(A)Ifboththeassertionandthereasonaretruestatements,andthereasonisacorrect
　　explanationoftheassertion.
　　(B)Ifboththeassertionandthereasonaretruestatements,butthereasonisNOTa
　　correctexplanationoftheassertion.
　　(C)Iftheassertionisatruestatement,butthereasonisafalsestatement.
　　(D)Iftheassertionisafalsestatement,butthereasonisatruestatement.
　　(E)Ifboththeassertionandthereasonarefalsestatements.
　　9.
　　ASSERTION
　　TheCanadianfederal
　　governmentcannotdetera
　　provincefromallowinguserfees
　　andextrabillinginitsprovincial
　　healthcareplan.
　　BECAUSE
　　REASON
　　UndertheCanadianConstitution,
　　mattersrelatingtohealthfall
　　underprovincialjurisdiction.
　　10.
　　ASSERTION
　　Personal-producinggeneral
　　agentsreceivehigher
　　commissionsthanotheragents.
　　BECAUSE
　　REASON
　　Unlikeothergeneralagents,
　　personal-producinggeneralagents
　　havenoagentsreportingtothem.
　　COURSE5:Fall2005-12-GOONTONEXTPAGE
　　MorningSession
　　11.
　　ASSERTION
　　IntheU.S.,theusualprocedureis
　　tofilepolicyformsinthestateof
　　domicilefirst.
　　BECAUSE
　　REASON
　　Manystatesrequirepriorapproval
　　ofpolicyformsfromthestateof
　　domicile.
　　12.
　　ASSERTION
　　Forindividualdisabilitybenefits,
　　undertherehabilitationclause,an
　　insuredmaynothavetocontinue
　　underthecareofaphysicianto
　　qualifyforbenefits.
　　BECAUSE
　　REASON
　　Forindividualdisabilitybenefits,
　　therehabilitationclauseprovides
　　thatinsuredswhojoinan
　　approvedprogramwillbe
　　consideredtotallydisabled.
　　13.
　　ASSERTION
　　Foraguaranteedinsurability
　　optiononanindividualdisability
　　policy,anoptionpassedonone
　　optiondatemaybepickedupat
　　thenextoptiondate.
　　BECAUSE
　　REASON
　　Theguaranteedinsurabilityoption
　　onanindividualdisabilitypolicy
　　doesnotrequirecompletionof
　　medicalunderwritingatagiven
　　optiondateinorderfortheinsured
　　topurchasetheincreasedcoverage
　　amount.
　　COURSE5:Fall2005-13-GOONTONEXTPAGE
　　MorningSession
　　14.Youaregiventhefollowinginformationonanaccumulationannuity:
　　Issuedate:January1,1996
　　Endofcurrentinterestguaranteeperiod:December31,2010
　　Currentguaranteedinterestrate:7%
　　Additionalmargin:0.25%
　　Interestratesavailablefornewdeposits:
　　NumberofyearsInterestrateguarantee
　　54.5%
　　105.0%
　　155.5%
　　CalculatethemarketvalueadjustmentonDecember31,2005.
　　(A)88%
　　(B)99%
　　(C)108%
　　(D)111%
　　(E)Noneoftheabove
　　COURSE5:Fall2005-14-GOONTONEXTPAGE
　　MorningSession
　　USETHISPAGEFORYOURSCRATCHWORK
　　COURSE5:Fall2005-15-GOONTONEXTPAGE
　　15.Youaregiventhefollowingforthefirstpolicyyearofadynamiclifeinsuranceproduct:
　　TargetPremium:8
　　PremiumPaid:20
　　CommissionRateHigh:70%
　　Low:20%
　　%AccountValue:5%
　　SalesExpenses:10%ofcommissions
　　YearOneSurvFactor:0.90
　　EndofYearOneAccountValue:50
　　Calculatethetotalcommissionandsalesexpenseforthefirstyear.
　　(A)10.40
　　(B)11.05
　　(C)11.28
　　(D)11.55
　　(E)13.48
　　COURSE5:Fall2005-16-GOONTONEXTPAGE
　　MorningSession
　　USETHISPAGEFORYOURSCRATCHWORK
　　COURSE5:Fall2005-17-GOONTONEXTPAGE
　　MorningSession
　　16-18.Eachofquestions16through18consistsoftwolists.Inthelistattheleftaretwoitems,
　　letteredXandY.Inthelistattherightarethreeitems,numberedI,IIandIII.ONEof
　　thelettereditemsisrelatedinsomewaytoEXACTLYTWOofthenumbereditems.
　　Indicatetherelateditemsusingthefollowinganswercode:
　　LetteredItem
　　IsRelatedtoNumberedItems
　　(A)
　　X
　　IandIIonly
　　(B)
　　X
　　IIandIIIonly
　　(C)
　　Y
　　IandIIonly
　　(D)
　　Y
　　IandIIIonly
　　(E)
　　Thecorrectanswerisnotgivenby(A),(B),(C)or(D).
　　16.X.DynamicproductsI.Dividends
　　Y.Pre-scheduledproductsII.Partialwithdrawalbenefits
　　III.Pureendowmentbenefits
　　17.X.Jointlast-to-dieI.Variationsofthistypeofpolicycan
　　paydoublethedeathbenefitifboth
　　livesdiewithinashorttimeofeach
　　other.
　　Y.Jointfirst-to-dieII.Frasierizedmortalityrates
　　III.Commontoincreasemortalityfor
　　riskofjointaccidentaldeath.
　　COURSE5:Fall2005-18-GOONTONEXTPAGE
　　MorningSession
　　18.X.Factormethodfordetermining
　　claimreserves
　　I.Usuallyusedforreservesthatare
　　easilyestimatedduetoashortlagor
　　runoffperiod.
　　Y.Tabularmethodfordetermining
　　claimreserves
　　II.Morerecently,methodhasbegunto
　　includesexandeliminationperiodas
　　variables.
　　III.Usuallyusedforlong-termdisability
　　claimswhereregulatorystandards
　　haveestablishedminimumreserves.
　　COURSE5:Fall2005-19-GOONTONEXTPAGE
　　MorningSession
　　19.Youaregiventhefollowing:
　　DevelopmentYear
　　Accidentyear0123
　　PaidtoDateas
　　of12/31/2005
　　2002260330360390390
　　2003300360400380
　　2004330430420
　　2005350150
　　0/11/22/3
　　Incurredlossdevelopmentfactor1.251.11.1
　　CalculatethegrossIBNRasof12/31/2005.
　　(A)230
　　(B)337
　　(C)540
　　(D)1,490
　　(E)Noneoftheabove
　　COURSE5:Fall2005-20-GOONTONEXTPAGE
　　MorningSession
　　USETHISPAGEFORYOURSCRATCHWORK
　　COURSE5:Fall2005-21-GOONTONEXTPAGE
　　MorningSession
　　20.Youaregiventhefollowingforagrouplifecontract:
　　EmployeeAmountExpectedAnnualMortalityRate
　　perthousand
　　A50,0000.11
　　B80,0000.16
　　C100,0000.23
　　Intheprioryear,thisgrouphadanactualannualclaimrateof0.28perthousand,whichis
　　20%credible.
　　Calculatetheexpectedclaimcostforthefollowingyear.
　　(A)41
　　(B)46
　　(C)60
　　(D)64
　　(E)Noneoftheabove
　　COURSE5:Fall2005-22-GOONTONEXTPAGE
　　MorningSession
　　USETHISPAGEFORYOURSCRATCHWORK
　　COURSE5:Fall2005-23-GOONTONEXTPAGE
　　21-22.Eachofquestions21through22consistsoftwolists.Inthelistattheleftaretwoitems,
　　letteredXandY.Inthelistattherightarefouritems,numberedI,II,IIIandIV.EACH
　　ofthelettereditemsisrelatedinsomewaytoEXACTLYTWOofthenumbereditems.
　　Matchthelettereditems(XandY)withthenumbereditems(I,II,III,andIV)shown
　　below.
　　Indicatetherelateditemsusingthefollowinganswercode:
　　X
　　Y
　　(A)
　　IandII
　　IIIandIV
　　(B)
　　IandIII
　　IIandIV
　　(C)
　　IandIV
　　IIandIII
　　(D)
　　IIandIII
　　IandIV
　　(E)
　　IIandIV
　　IandIII
　　21.X.Deferredtaxliabilitiescreatedby
　　timingdifferencesbetweenU.S.
　　solvencyandtaxstandards
　　I.Differentcarryingvalueforreal
　　estate
　　Y.Deferredtaxliabilitiescreatedby
　　permanentdifferencesbetween
　　U.S.solvencyandtaxstandards
　　II.Estimationofincurredbutnot
　　reportedclaims
　　III.Researchanddevelopmenttaxcredits
　　IV.Non-taxableinvestmentincome
　　22.X.CanadianfederaljurisdictionI.Workerscompensation
　　Y.CanadianprovincialjurisdictionII.Employmentinsurance
　　III.Automobileinsurance
　　IV.Maternitybenefit
　　COURSE5:Fall2005-24-GOONTONEXTPAGE
　　MorningSession
　　23.Ahomeownerinsurancecoverageisprovidedwithauniformlossdistributionoverthe
　　intervalrval0<X<200.
　　Calculatethedeductibleamountifthedesiredexpectedlossis50.
　　(A)43
　　(B)50
　　(C)59
　　(D)69
　　(E)Noneoftheabove
　　COURSE5:Fall2005-25-GOONTONEXTPAGE
　　MorningSession
　　24.Givenajointlast-to-dielifeinsurancepolicyonlivesxandywithestimatedmortality
　　ratesof:
　　tqx(t)qy(t)
　　10.1100.050
　　20.1500.070
　　Determinetheprobabilityofapaymentinyeartwo.
　　(A)0.011
　　(B)0.019
　　(C)0.023
　　(D)0.028
　　(E)Noneoftheabove
　　COURSE5:Fall2005-26-GOONTONEXTPAGE
　　MorningSession
　　25.Allofthefollowingaremajorconsiderationsinfinancialreportingforgroupinsurance
　　EXCEPT:
　　(A)Alternativefundingmethods
　　(B)Policyholderaccounting
　　(C)Excesssurplus
　　(D)Regulatoryrequirements
　　(E)Administrativearrangements
　　26.Allofthefollowingarecommonpurposesofperforminganactuarialvaluationofa
　　companypensionplanintheU.S.EXCEPT:
　　(A)Todeterminethemaximumcontributionthatthecompanycandeductinanyone
　　yearforfederalincometaxpurposes.
　　(B)Tocompletetheannualfilingrequiredunderstatelaw.
　　(C)Toestablishplancostsandliabilitiesinconnectionwithcorporatemergersand
　　spin-offs.
　　(D)Toprovideabasisfortheallocationoftheassetsofaterminatedplan.
　　(E)Toprovideinformationtoplanparticipantsconcerningthefundingstatusoftheir
　　benefits.
　　COURSE5:Fall2005-27-GOONTONEXTPAGE
　　MorningSession
　　27.Forguarantyassociations,allthefollowingaretrueEXCEPT:
　　(A)Theyprovidefortheindemnificationoflossessufferedbypolicyholdersof
　　insolventcompanies.
　　(B)Theygivethepublicconfidenceintheabilityoftheinsuranceindustrytodeliver
　　onobligations.
　　(C)Theguarantyassociationintheinsolventinsurer’sstateofdomicilepaysall
　　coveredclaims.
　　(D)Theyassesscompaniesinproportiontopremiumsreceived.
　　(E)Theygenerallyavoidassumingthebusinessofaninsolventcompany.
　　28.AllofthefollowingstatementsaretrueforadefinedcontributionplanEXCEPT:
　　(A)Employeeassumesinvestmentrisk.
　　(B)Valueofbenefitincreaseswithage.
　　(C)Benefitleveldirectlyaffectedbyinvestmentperformance.
　　(D)Hashighperceivedvalue.
　　(E)Limitedcapacitytoimprovepastservicebenefits.
　　COURSE5:Fall2005-28-GOONTONEXTPAGE
　　MorningSession
　　29.YouaregiventhefollowingwithrespecttothreeU.S.domiciledcompanies:
　　?CompanyYisanon-controlledcorporationwith25%ofitscommonsharesowned
　　byCompanyX.
　　?CompanyZisanunrelatedcorporationtobothCompanyXandCompanyY.
　　?Thecorporatetaxrateis40%.
　　?CompanyXpays$100individendstocompanyY.
　　?CompanyYthenpays100%ofafter-taxdividendrevenuetoCompanyZ.
　　Calculatethetotalincometaxpayableonthesetwodividendtransfers.
　　(A)0
　　(B)19
　　(C)58
　　(D)64
　　(E)Noneoftheabove
　　COURSE5:Fall2005-29-GOONTONEXTPAGE
　　MorningSession
　　30-35.Eachofquestions30through35consistsofanassertionintheleft-handcolumnanda
　　reasonintheright-handcolumn.Codeyouranswertoeachquestionbyblackening
　　space:
　　(A)Ifboththeassertionandthereasonaretruestatements,andthereasonisacorrect
　　explanationoftheassertion.
　　(B)Ifboththeassertionandthereasonaretruestatements,butthereasonisNOTacorrect
　　explanationoftheassertion.
　　(C)Iftheassertionisatruestatement,butthereasonisafalsestatement.
　　(D)Iftheassertionisafalsestatement,butthereasonisatruestatement.
　　(E)Ifboththeassertionandthereasonarefalsestatements.
　　30.
　　ASSERTION
　　IntheU.S.,self-insuredgroup
　　medicalplansareregulatedat
　　boththefederalandstatelevels.
　　BECAUSE
　　REASON
　　IntheU.S.,federalregulations
　　applytoemployersponsored
　　benefitplansandstatelawapplies
　　tothebusinessofinsurance.
　　31.
　　ASSERTION
　　Individualriskassessment
　　techniquesarenolongerusedto
　　underwritesmallgroupmedical
　　insuranceplans.
　　BECAUSE
　　REASON
　　HIPAAdoesnotallowacarrierto
　　singleoutindividualemployees
　　forspecialratingtreatmentdueto
　　theirhealth.
　　COURSE5:Fall2005-30-GOONTONEXTPAGE
　　MorningSession
　　32.
　　ASSERTION
　　Nonmedicalunderwritingis
　　typicallyusedforunderwriting
　　largegroupsoflifeinsureds.
　　BECAUSE
　　REASON
　　Nonmedicalunderwritingusually
　　onlyrequiresthattheinsuredsare
　　activelyworkingwithno
　　significantmedicalabsences.
　　33.
　　ASSERTION
　　Incollectingmedicalclaimdata
　　todevelopmanualrates,an
　　experienceperiodofatleast
　　twelvemonthsisneeded.
　　BECAUSE
　　REASON
　　NovemberandDecemberoften
　　havefewerincurredmedical
　　claimsthanaverage.
　　34.
　　ASSERTION
　　IntheU.S.,withrespecttolarge
　　grouphealthinsurance,gender
　　cannotbeusedasarating
　　characteristic.
　　BECAUSE
　　REASON
　　TheU.S.governmentrestrictsthe
　　useofgender-basedemployee
　　contributionratesforlargegroups.
　　35.
　　ASSERTION
　　Inmostcountries,taxreserves
　　areidenticaltosolvencyreserves.
　　BECAUSE
　　REASON
　　Solvencyreservesproducethe
　　smallesttaxdeductionsfor
　　insurancecompanies.
　　COURSE5:Fall2005-31-GOONTONEXTPAGE
　　MorningSession
　　36-40.Eachofquestions36through40consistsoftwolists.Inthelistattheleftaretwoitems,
　　letteredXandY.Inthelistattherightarethreeitems,numberedI,IIandIII.ONEof
　　thelettereditemsisrelatedinsomewaytoEXACTLYTWOofthenumbereditems.
　　Indicatetherelateditemsusingthefollowinganswercode:
　　LetteredItem
　　IsRelatedtoNumberedItems
　　(A)
　　X
　　IandIIonly
　　(B)
　　X
　　IIandIIIonly
　　(C)
　　Y
　　IandIIonly
　　(D)
　　Y
　　IandIIIonly
　　(E)
　　Thecorrectanswerisnotgivenby(A),(B),(C)or(D).
　　36.X.CashbasisaccountingI.Methodusuallyusedtodetermine
　　non-businessincome.
　　Y.AccrualbasisaccountingII.Producesmoreaccurate
　　measurementofincomeoveran
　　accountingperiod.
　　III.Costofcapitalassetsamortizedover
　　theirusefullife.
　　37.X.No-faultsystemI.Subrogationofautoinsuranceclaims
　　Y.TortsystemII.Significantlyhigherpersonalinjury
　　protectionpremium
　　III.Workerscompensation
　　COURSE5:Fall2005-32-STOP
　　MorningSession
　　38.X.Waiverofpremiumbenefitfor
　　grouplifeinsurance.
　　I.Insuredreceivesmonthlyinstallment
　　benefit.
　　Y.Totalandpermanentdisability
　　benefitforgrouplifeinsurance.
　　II.Insuredmustremaincontinuously
　　disableduntildeath.
　　III.Insuredistypicallypaidareduced
　　deathbenefitattimeofdeath.
　　39.X.MultipleEmployerWelfare
　　Association(MEWA)
　　I.Collectivelybargained
　　Y.PurchasingallianceII.Self-insured
　　III.Typicallysmallaverageemployer
　　size(<50)
　　40.X.CanadianMCCSRTier1capitalI.Contributedcapital
　　Y.CanadianMCCSRTier2capitalII.Deductionfor100%ofnegative
　　reserves
　　III.Subordinateddebt
　　**ENDOFEXAMINATION**
　　MORNINGSESSION
　　COURSE5:Fall2005-33-STOP
　　MorningSession
　　COURSE5
　　AFTERNOONSESSION
　　APPLICATIONOFBASICACTUARIAL
　　PRINCIPLES
　　SECTIONA–WRITTENANSWER
　　COURSE5:Fall2005-1-GOONTONEXTPAGE
　　AfternoonSession
　　**BEGINNINGOFEXAMINATION**
　　COURSE5
　　AFTERNOONSESSION
　　BeginningwithQuestion9
　　9.(4points)DescribetheobjectivesofratemakinginPropertyandCasualtyinsurance.
　　10.(5points)
　　(a)Describethedifferencebetween:
　　i.yearlyrenewableterm(YRT)reinsurance
　　ii.coinsurance
　　(b)Describethedifferencebetween:
　　i.coinsurance
　　ii.modifiedcoinsurance
　　iii.coinsurancewithfundswithheld
　　(c)Describethedifferencebetween:
　　i.automaticreinsurance
　　ii.facultativereinsurance
　　(d)Alifeinsurancecompanyhas:
　　?anexcessreinsuranceagreementwitha$1,000,000retentionlimit
　　?a40%first-dollarquotasharereinsuranceagreement
　　Calculatetheexcessandquotasharereinsuranceamountsfor:
　　i.$800,000termpolicy
　　ii.$2,000,000termpolicy
　　Showallwork.
　　COURSE5:Fall2005-2-GOONTONEXTPAGE
　　AfternoonSession
　　11.(6points)Youaregiventhefollowingdataforaproposedlifeinsuranceproduct:
　　tAftTax
　　SolvEarn
　　Req
　　Cap
　　Solv
　　Res
　　Ben
　　ResDACTaxInvInc
　　RC
　　TaxInvInc
　　RC
　　1-50101219100-4000
　　210.29.82531926.80.60.24
　　310.29.53338846.80.590.24
　　AfterTaxInterestRateEarnedonAssets:3.6%
　　HurdleRate:10%
　　ReqCap(0):0
　　(a)Describetheconsiderationsindeterminingwhichaccountingbasisshouldbeused
　　todeterminetheprofitsofthisproduct.
　　(b)CalculateEmbeddedValue(3)usingdistributableearningsasprofits.
　　(c)Calculatethereturnonassetsforthefirstthreeyearsusingdistributableearnings
　　asprofitsanddiscountingattheaftertaxearningsrate.
　　12.(6points)Withrespecttoalifeinsurancecompany:
　　(a)Describetheobjectivesofinvestmentregulationandhowtheycanbeachieved.
　　(b)DescribetheNAICregulationfor:
　　i.th*uationofassets
　　ii.th*uationofreserves
　　COURSE5:Fall2005-3-GOONTONEXTPAGE
　　AfternoonSession
　　13.(6points)WithrespecttoU.S.medicalbenefitplans,describethevariousprovisionsthat
　　maybeusedforcostsharing:
　　(a)withtheinsured
　　(b)withtheprovider
　　14.(4points)
　　(a)Describethetypicalandalternatemethodsofdisclosingpolicyloansonalife
　　insurancecompany’sbalancesheetandincomestatement.
　　(b)Youaregiventhefollowing:
　　EndofYearInvestedAssets3,000
　　EndofYearPolicyLoansIn-Force500
　　EndofYearReserves3,500
　　BeginningofYearReserves3,300
　　Premiums300
　　InterestonInvestedAssets180
　　InterestonPolicyLoans25
　　BenefitsPaid215
　　Expenses30
　　TaxRate35%
　　Prepareabalancesheetandanincomestatementusingavalidmethodof
　　reflectingpolicyloans.
　　15.(5points)Regardlessofaccountingbasis,describethefourwidelyusedreservemethods
　　forindividuallifeinsurance.
　　COURSE5:Fall2005-4-STOP
　　AfternoonSession
　　16.(4points)Youaregiventhefollowinginformationregardingalong-termdisability
　　insuranceproduct:
　　Benefit:$5,000payablemid-monthfor3months
　　Eliminationperiod:1month
　　Monthlyinterestrate:1%
　　Pendingfactor:70%forallclaims
　　ContinuanceTable*
　　ClaimDuration(months)
　　0100
　　190
　　280
　　370
　　460
　　*Continuancetabl*uesforthemiddleofamonthcanbecomputedthrough
　　averaging
　　(a)Explainthereservemethodologyforopenclaims.
　　(b)Calculatethetabularreservesattheendofmonth1.
　　(c)Explainthereservemethodologyforpendingclaims.
　　(d)Calculatethependingreserveforaclaimreportedattheendofmonth3.
　　Showallwork.
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