17. (8 points) You are the consulting actuary for Company XYZ, which implemented a
flexible benefits plan two years ago. Expenses and taxes are 15% of claim costs and are
paid by Company XYZ.
You are provided the fo llowing data for the most recent plan year:
Option
Dependent Status
Participation
Price
Average
Claims Cost
Credits
A No Dependents 175 $290 $175 $400
A With Dependents 75 $575 $350 $700
B No Dependents 150 $465 $420 $400
B With Dependents 200 $1,045 $945 $700
Total 600
(a) Calculate the employer and employee cost for each combination of option and
dependent status, and in total for the medical benefits. Show your work.
(b) Company XYZ is considering a change to its credit structure for the upcoming
year so that all employees receive the same credit amount. Assume a trend rate of
10% for claim costs, employee costs, and employee prices. Calculate the
resulting credits for next year for the family credit and the average credit
approaches. Show your work.
(c) Determine winners and losers under each option and dependent status for the
family credit and average credit approaches. Show your work.
(d) Outline considerations you would present to Company XYZ to help them make a
decision regarding which credit structure to implement.
18. (6 points) You are the product development actuary for Yancanuck Insurance, a
multinational insurer operating in the US and Canada. You have been asked to write a
report on LTC in the US and Canada. The report sho uld address the topics of
underwriting, plan design, taxes, benefit triggers, and market receptivity.
Compare and contrast Group and Individual products in the two countries addressing the
above topics.
COURSE 8: Fall 2003 -13- GO TO NEXT PAGE
Health and Group Life Segment
Afternoon Session
19. (6 points) ABC Life Company sells a supplemental cancer product through mass mailings
targeted at professional association groups. The majority of the products pay a fixed
daily amount, subject to an annual limit.
You have been asked to revamp the product offerings to meet management profit targets
of 10%. Profits are defined as return on total capital requirements including the use and
release of free statutory surplus. The previous generations of cancer products were priced
at an 8% profit target.
Actual financial results and pricing parameters, presented below, have produced different
profit patterns compared to the test launch.
You are concerned about performance against several assumptions:
(i) morbidity and persistency
(ii) fixed versus variable expenses
(iii) overall profitability
Evaluate performance with regard to these assumptions and identify factors which may
have contributed to these financial results.
Results of Direct Marketing Launch
Test Actual
Profit Target 10% 10%
PV gross premiums $115,494 $711,552
PV incurred claims $68,948 $430,517
PV ongoing admin expenses $24,122 $197,731
PV commissions $3,416 $37,517
Initial marketing expenses $7,458 $86,569
PV profit stream of free earnings released $4,173 ($74,147)
(see next page)
COURSE 8: Fall 2003 -14- GO TO NEXT PAGE
Health and Group Life Segment
Afternoon Session

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