6. (5 points) The Chief Operations Officer at Wonderful Life has returned from a seminar
where she attended a session on C-2, Insurance Risk. She is concerned about the impact
risk-based capital can have on growth. As the Chief Actuary at Wonderful Life you have
been asked to discuss these issues with the COO.
(a) Discuss characteristics used to determine the level of required surplus for
insurance risk
(i) for insurance companies in general, and
(ii) specifically for the four primary business divisions of Wonderful Life
(b) Discuss the relationships among growth, profit, and required surplus for C-2
Insurance Risk.
COURSE 8: November 2001 -6- STOP
Health and Managed Care
Morning Session
7. (4 points) As a consulting actuary, you have been hired by a managed care organization
to measure its medical effectiveness.
(a) Describe the challenges of using data to produce management information and
how they relate to Actuarial Standards of Practice.
(b) Describe your considerations for evaluating health plan performance
measurement criteria with regard to:
(i) data sources; and
(ii) measurement process.
8. (7 points) ABC Life insurance company plans to enter the long term care market. You
have been asked to develop pricing for a new long term care product.
(a) Identify general sources of data available to actuaries when pricing any new
product line and explain the cautions which should be taken in using them.
(b) Describe assumptions necessary to price the long term care product, and how the
Actuarial Standards of Practice will influence your development of those
assumptions.
(c) When developing financial reporting related to the long term care product,
(i) Describe the various financial statement liabilities you need to consider;
and
(ii) Describe the methods that maybe used to estimate each.
COURSE 8: November 2001 -7- STOP
Health and Managed Care
Morning Session
9. (4 points) You have been asked to draft a report which details the various ways that
profit and growth may be measured at your company.
(a) Discuss methods of measuring growth.
(b) Discuss methods of measuring profit.
(c) Calculate the pre-tax underwriting gain required to achieve an 18% Return on
Equity given the following assumptions:
•capital + surplus = 20% of premiums
•reserves + capital + surplus = 30% of premium
•investments earn 5% after tax
•your company is in the 37% tax bracket
Show your work.
**END OF EXAMINATION**
MORNING SESSION
COURSE 8: November 2001 -8- GO ON TO NEXT PAGE
Managed Care
Afternoon Session
**BEGINNING OF EXAMINATION **
AFTERNOON SESSION
Beginning With Question 10
10. (3 points) You have been asked to review claims operations at a health insurance carrier.
(a) Describe basic information requirements necessary for the proper handling of
health claims.
(b) Describe the health claim adjudication process.
11. (6 points) You are the consulting actuary for Smith Corporation. Due to increasing
claims costs, your client wants to review the current noncontributory dental program
offered to its employees which includes:
Benefits
Deductible $25 individual /$50 family
Coinsurance
•preventive 100%
•basic 100%
•major 80%
•orthodontics 60%
The Corporation is thinking of incorporating dental coverage into a flexible benefits
program currently under development.
(a) Outline design changes for the current free-standing dental plan that can be used
to reduce costs and explain how the changes would apply to the current plan.
(b) Describe cost and anti-selection issues in the design of a flexible benefits
program, including design features that could be used to alleviate these issues if
dental is included in the flexible benefit program.
COURSE 8: November 2001 -9- GO ON TO NEXT PAGE
Managed Care
Afternoon Session
12. (6 points) You are an actuary for a large reinsurer. You have been asked to provide
Company ABC with a reinsurance quote. Company ABC is a medium size disability
company which has recently developed a new LTC product and recently acquired a group
major medical block of business. In recent years, Company ABC has been unable to
achieve its corporate profit objectives.
(a) Identify the reinsurer’s underwriting considerations in evaluating whether to offer
a reinsurance program to Company ABC.
(b) Describe the sources of risk inherent in each of Company ABC’s product lines.
(c) Design a reinsurance program for Company ABC that will address the sources of
risk for each of Company ABC’s product lines. Justify each recommendation.
13. (5 points) You are the group benefit consultant for a U.S. company that offers different
managed care plans to its employees. Over the last few years, the employer has noticed
that costs have increased rapidly and that employee dissatisfaction is growing. You have
to prepare a report to explain a substantial increase in premium rates.
(a) Describe the major drivers of consumerism in the health care industry.
(b) Describe other current managed care trends and indicate which of these might
contribute to the cost increase.
(c) Describe approaches the employer could use to mitigate this rate increase.
COURSE 8: November 2001 -10- GO ON TO NEXT PAGE
Managed Care
Afternoon Session
Questions 14 through 16 pertain to the Case Study

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