The examination for this course consists of five hours of multiple-choice and written-answer questions. A read-through time will be given prior to the start of the exam, 15 minutes in the morning session and 10 minutes in the afternoon session.

This course develops the candidate’s knowledge of basic actuarial principles applicable to a variety of financial security systems: life, health, and property & casualty insurance, annuities, and retirement systems. The candidate will be required to understand the purpose of these systems, the design and development of financial security products, the concepts of anti-selection and risk classification factors, and the effects of regulation and taxation on these issues. The course will develop the candidate’s knowledge of principles and practices applicable to the determination of premiums and rates and the valuation and funding of these financial security systems.

The final administration of the current Course 5 will be in November of 2005. It will be replaced by Fundamentals of Actuarial Practice (FAP) in early 2006. As more details are known, they will be posted to the SOA Web site.

Learning Objectives

1. Basic Principles of Design
   After studying the material, the candidate should be able to:
   1. Explain how financial security programs interact to combat financial insecurity.
      1. Explain the meaning of financial insecurity.
      2. Explain why financial security programs are necessary
      3. Identify which programs are better suited to solve specific problems
   2. Analyze the Product Development Process.
      1. Determine why an institution would develop certain plans or products.
         • Determine if a plan or product is necessary and marketable.
         • Determine if this plan or product fits into the culture of the institution.
         • Evaluate the competitive issues involved with developing this plan or product.
      2. Determine the steps necessary to develop these plans or products.
         • Evaluate the setting of assumptions.
         • Calculate asset shares.
         • Analyze the results of product pricing.
         • Determine profitability measures.
      3. Determine the effect of regulation and taxation on the design of these plans or products.
         • Explain why insurance regulation and taxation are necessary.
         • Evaluate the effectiveness of specific regulation and taxation on financial security programs.
         • Structure financial security programs to take into account the effect of specified taxation and regulation assumptions.
   3. Distinguish between the various types of financial security products including:
      1. Life insurance (Individual, Group)
         • Identify various products.
         • Explain unique product features.
         • Select the best product to use given a set of criteria.
      2. Health (Individual, Group, Government sponsored)
         • Identify various products.
         • Explain unique product features.
         • Select the best product to use given a set of criteria.
      3. Retirement plans (Individual annuities, Employer sponsored, Government sponsored)
         • Identify various products.
         • Explain unique product features.
         • Select the best product to use given a set of criteria.
      4. Property and Casualty insurance
         • Identify various products.
         • Explain unique product features.
         • Select the best product to use given a set of criteria.
      5. Social Insurance
         • Identify various programs.
         • Explain unique features.
         • Explain differences and similarities between private insurance and social insurance.
   4. Compare the various methods of distributing these products and the effectiveness of each method.
      1. Compare current distribution systems.
      2. Determine which distribution system is best in various situations.
      3. Evaluate fictitious distribution systems.

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