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
Health and Group Life Segment
Afternoon Session
Question 14 pertains to the Case Study
14. (13 points) You are a pricing actuary in the GLTD division of Wonderful Life. As a
result of Wonderful Life’s recent marketing campaign, an employer, KGS Industries, has
requested a quote on both group LTD and group life coverage. KGS is interested in
coverage for employees in both its local home office and its large manufacturing
subsidiary in the country of Koganistan.
Group Long Term Disability
•Non-contributory plan;
•Benefits equal to 60% of salary;
•Six month elimination period;
•Five year benefit period;
•No benefit offsets.
Group Life
•Two-times-salary benefit;
•Noncontributory plan.
Information on KGS's home office employees is shown below:
Number of
Employees
Employee Age Annual Salary per
Employee
100 32 $30,000
200 42 $40,000
100 52 $50,000
The Koganistan subsidiary has 15,000 employees with an average age of 35. Koganistan
has no insurance regulations. Inflation has been approximately 25% per year and the
unemployment rate is currently 15%.
COURSE 8: November 2001 -11- GO ON TO NEXT PAGE
Health and Group Life Segment
Afternoon Session
14. Continued
Using information from the case study,
(a) (7 points) Assuming all KGS's home office employees are male and that KGS's
industry and all other applicable rating factors equal 1.00;
(i) Calculate the annual GLTD base premium using Wonderful Life's GLTD
rating manual. Assume 0% interest and assume you can use annualized
termination rates.
(ii) Recalculate the annual GLTD base premium under the assumption that
each employee receives $500 of other monthly disability income which is
directly offset from the Group LTD benefit.
(iii) Calculate KGS's aggregate group life premium using Wonderful Life's
manual rate structure. Assume 2001 expense levels remain at the year
2000 levels.
(b) (3 points) With regard to KGS's requested rate quote for its employees in
Koganistan:
(i) Assess whether the benefit plans requested are appropriate for the
Koganistan employees;
(ii) Outline changes to plan design and plan provisions that can be
implemented to limit Wonderful Life's risk exposure in Koganistan; and
(iii) Describe possible sources of mortality and morbidity information you
might consider using in pricing this case.
(c) (3 points) You have been asked to calculate statistics to help market the Group
LTD product to KGS's home office employees.
(i) Compute the probability that a 27-year-old male will be disabled for
more than 6 months at some point prior to age 65. Assume that the rates
at central quinquennial ages apply throughout the quinquennial age
bracket (i.e., the rate for age 27 applies to all ages 25-29, etc.); and
(ii) Calculate the duration from date of disability at which half of newly
disabled 27-year-old males will have recovered. Assume a six-month
elimination period.
COURSE 8: November 2001 -12- GO ON TO NEXT PAGE
Health and Group Life Segment
Afternoon Session

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