10. (4 points) As a result of the new Medicare Prescription Drug Improvement and
Modernization Act of 2003 it may be necessary for a plan sponsor to perform an actuarial
valuation to determine actuarial equivalence between the sponsor’s plan with the basic
Medicare benefit.
Assume that costs over age 65 for the sponsor’s plan are $1,500 per year and plan costs,
on the average, increase by 3% per year above 65. Assume that the demographics are as
follows:
Demographics
Age Group Number
65 to 69 200
70 to 74 400
75 to 79 300
80 to 84 100
Total 1,000
(a) Outline the assumptions needed to perform an actuarial valuation of the sponsor’s
plans.
(b) Develop the sponsor’s plan costs by age group.
(c) Describe the financial impact to the plan sponsor of the three possible outcomes
when determining actuarial equivalence.
**END OF EXAMINATION**
MORNING SESSION
COURSE 8: Fall 2004 - 8 - GO TO NEXT PAGE
Health and Group Life Segment
Afternoon Session
**BEGINNING OF EXAMINATION**
HEALTH AND GROUP LIFE SEGMENT
AFTERNOON SESSION
Beginning With Question 11
11. (4 points)
(a) Describe the types of claim liabilities and reserves. For each, provide an example
of an event which would require such a liability or reserves to be established.
(b) Describe common methods used to estimate claim reserves.
12. (6 points) Company XYZ management has decided it is time to invest resources into
developing better reporting and analytical systems.
(a) (2 points) Describe ways data compiled in the claim adjudication process can be
used for reporting and analysis.
(b) (3 points) Compare and contrast types of data structures and physical media used
to store data in computer systems.
(c) (1 point) Describe considerations when choosing a data structure and storage
media.
COURSE 8: Fall 2004 - 9 - GO TO NEXT PAGE
Health and Group Life Segment
Afternoon Session
13. (5 points) You are the CFO of a start-up insurance company. You are in the process of
determining your minimum required surplus and designing a system for measuring
capital, profit, and growth.
(a) Describe the insurance risks that should be considered when setting minimum
surplus requirements.
(b) Discuss the necessary considerations when designing a system for measuring
capital, profit, and growth.
(c) Discuss and illustrate with formulas how capital, profit, and growth inter-relate.
COURSE 8: Fall 2004 - 10 - GO TO NEXT PAGE
Health and Group Life Segment
Afternoon Session
14. (5 points) Paul and Leslie, who are both in their 30’s, were recently married and are
meeting with an agent to discuss their financial plans.
Paul works on contract as a motivational speaker and has no employee benefits. He earns
$50,000 a year. Leslie works for a financial institution which has a flexible benefits plan
including STD and LTD. Leslie earns a base salary of $50,000 per year and earned a
bonus of $5,000 last year.
Paul is considering the following disability plan:
Type: Individual Disability Income
Waiting Period: 30 days
Definition of Disability: Own occupation to 65
Benefit Amount: $2500 per month
Benefit Term: 5 years
Leslie is currently enrolled in the following option in the flex plan:
Type: LTD STD
Elimination Period: 4 months
Definition of Disability: 2 Year Own Occupation,
then Any Occupation to 65
Benefit Amount: 60% of salary 100% of salary for 2
months, 75% of salary
thereafter
Funded: 100% Employee paid
Indexing: 3% per annum on disability
anniversary
(a) Compare and contrast the underwriting criteria used for individual and group
disability policies.
(b) Describe how these criteria would apply specifically to Paul and Leslie.
(c) Describe how benefits would be determined and calculate Paul and Leslie’s
cashflow if they were both injured in a car accident and were unable to work for 5
years. Show your work.
.
COURSE 8: Fall 2004 - 11 - GO TO NEXT PAGE
Health and Group Life Segment
Afternoon Session
Questions 15 – 17 pertain to the Case Study
15. (6 points) On January 1, 2003, Dengo Software added a non-discriminatory Section 79
group term life insurance plan from Wonderful Life to its employee benefit plan. Dengo
pays the premium, and the benefit is equal to one times the employee’s annual salary.
Employees of Dengo may purchase additional group term life insurance through salary
deduction. Dengo also provides accidental death and dismemberment coverage (AD&D)
equal to two times annual salary.
Wonderful Life will apply 10% credibility to its own experience as shown in table GLD-
2, and develop unisex rates to the nearest penny using 50% female content.
The 1999 IRS Table I rates are as follows:
From age: To age: IRS Table I Rate
0 24 $0.05
25 29 $0.06
30 34 $0.08
35 39 $0.09
40 44 $0.10
45 49 $0.15
50 54 $0.23
Information regarding employee coverage is shown in the table below:
Employee Age Sex Annual Salary
Additional Coverage
(multiple of salary)
1 32 F 34,000 0
2 37 F 96,000 3
3 47 F 77,000 1
4 37 M 78,000 0
5 42 M 72,000 0
Note: Employee 5 is permanently disabled and terminated employment on 12/31/02.
(a) (4 points) Calculate the 2003 monthly imputed income for each employee for life
insurance and AD&D. Show your work.
(b) (2 points) Discuss the impact on the employee and employer of the 1999 change
in Table I rates.
COURSE 8: Fall 2004 - 12 - GO TO NEXT PAGE
Health and Group Life Segment
Afternoon Session
Questions 15 – 17 pertain to the Case Study

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