32. A product has a 6% profit margin and a premium margin of 90%.
Calculate the breakeven sales percentage change needed to offset a 2% price reduction.
(A) 43% decrease
(B) 30% decrease
(C) 21% increase
(D) 30% increase
(E) 43% increase
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Morning Session
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COURSE 5: Fall 2003 - 27 - GO ON TO NEXT PAGE
Morning Session
33. For the Canadian annual statement, each of the following is true EXCEPT:
(A) Claims in course of settlement are separately reported.
(B) Group life insurance in force is split by type of group covered.
(C) Group life insurance in force is split between term and permanent.
(D) Income is separately developed by line of business.
(E) Gross reserves are exhibited separately by line of business.
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Morning Session
34. In Canada, for federal tax calculations related to one-year group term life insurance, each
of the following is true, EXCEPT:
(A) Acquisition expenses must be amortized over the term period.
(B) The reserve for known claims generally cannot exceed 95% of the statutory
reserve.
(C) The reserve for IBNR claims cannot exceed 95% of the statutory reserve.
(D) The actuarial reserve is limited to the equally apportioned unearned premium.
(E) The provision for experience refunds cannot exceed 25% of the annual premium.
35. In the U.S., for a group insurance minimum premium plan, all of the following are true
EXCEPT:
(A) Claims paid by the policyholder are exempt from premium tax in most states.
(B) It can be used with retrospective refunds.
(C) The accounting for claims is similar to that for reserveless arrangements.
(D) Premium equivalents are reported on the NAIC annual income statement.
(E) Policyholder funds the claim portion of the policy.
COURSE 5: Fall 2003 - 29 - STOP
Morning Session
36. For a property and casualty insurance product, you are given the following accident year
2000 information:
(i) Under Expected Loss Ratio method, the estimated ultimate losses are
500,000
(ii) The following paid loss-development factors from the Chain-Ladder
method
Ratio of Successive Development Years
1/0 2/1 3/2 4/3 5/4 6/5
average 1.51 1.43 1.22 1.05 1.03 1.00
Calculate the year-end 2002 estimated loss reserve using the Bornhuetter-Ferguson
method.
(A) 121,048
(B) 175,497
(C) 234,999
(D) 324,503
(E) 378,952
**END OF EXAMINATION**
MORNING SESSION
COURSE 5: Fall 2003 - 30 - STOP
Morning Session
COURSE 5
AFTERNOON SESSION
APPLICATION OF BASIC ACTUARIAL
PRINCIPLES
WRITTEN ANSWER
COURSE 5: Fall 2003 - 31 - GO ON TO NEXT PAGE
Afternoon Session
**BEGINNING OF EXAMINATION 5**
AFTERNOON SESSION
Beginning with Question 9
9. (6 points) Describe the assumptions used in the valuation of a defined benefit pension
plan.
10. (6 points) For a life insurance company:
(a) Describe the components of interest rate risk that should be reflected in required
capital.
(b) Describe the treatment of interest rate risk in the required capital formulas for
Canada and the U.S.
COURSE 5: Fall 2003 - 32 - GO ON TO NEXT PAGE
Afternoon Session
11. (4 points) With respect to a large block of group major medical business that has been in
force for a number of years:
(a) Define each type of claim reserve and claim liability needed to establish reserves
for this business.
(b) Describe the primary considerations in establishing these reserves.
(c) Describe the most appropriate claim reserve method for this type of business and
explain why you chose this method.
12. (7 points) Describe the product features that impact the cost of group long term disability
(LTD) benefits.
13. (7 points) For an insurance company:
(a) Describe solvency reserves, earnings reserves, and tax reserves.
(b) Describe the differences between taxable earnings and pre-tax solvency earnings.
COURSE 5: Fall 2003 - 33 - STOP
Afternoon Session
14. (5 points) For a life insurance product, you are given:
Year
Distributable
Earnings
After Tax
Stockholder
Earnings
Solvency
Reserves
Required
Capital
Stock
Liabilities
DAC
1 -6.00 0.10 1.00 0.40 5.30 10.00
2 1.50 0.30 1.20 0.50 3.80 7.00
3 2.30 0.45 0.00 0.00 0.00 0.00
(a) Describe the return on investment (ROI) and the return on equity (ROE).
(b) Calculate the ROE in the Year 1 using the average equity base.
(c) Calculate the 3 year weighted average ROE using the average equity base and a
9.5% discount rate.
Show all work.
15. (5 points) With respect to estimating expected claims for group life insurance, describe
the adjustments that can be made to a manual claims table, and the reasons for making
such adjustments.
**END OF EXAMINATION**
AFTERNOON SESSION

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