16. (5 points) You are given:
Cash Claims Paid by Year of Incurral
Incurral Year
Calendar Year 2000 2001 2002 2003 2004
2000 5
2001 10 6
2002 4 12 7
2003 3 7 14 7
2004 1 2 2 13 6
End of Year Claim Reserve
Incurral Year
Calendar Year 2000 2001 2002 2003 2004
2000 15
2001 10 16
2002 8 5 17
2003 5 4 6 18
2004 4 3 5 6 17
(a) Describe the common tests of claim reserve adequacy.
(b) Evaluate the sufficiency of the claim reserves. Show all work.
Course 8I: Fall 2005 -8- STOP
Individual Insurance – U.S.
Afternoon Session
17. (4 points) A U.S. insurance company has historically sold only whole life insurance.
Sales have been declining steadily over the last few years. Senior management expects to
introduce a universal life product that provides the customer with more flexibility.
(a) Describe features of a universal life product that provide flexibility to the
customer.
(b) The following product design is proposed:
• The premium load is 15%.
• The guaranteed interest rate is 5.00%.
• A surrender charge applies for 5 years.
• The policy fee is $5 per month.
• Unscheduled premium payments are not permitted.
• There are no riders.
• The policy loan interest rate is equal to the current interest rate.
• The guaranteed interest bonus is 1% beginning in year 11.
Evaluate the proposed design and recommend any changes.
**END OF EXAMINATION**
AFTERNOON SESSION