(Papers) ACET Paper June 2015 "ST2 Life Insurance"
a) Define Profit Test and Return on Capital in the context of
pricing an insurance contract for a proprietary company.
b) Describe how the objective of profitability may conflict with the
marketability of an insurance product .
c) The marketing manager of your company has suggested launching a deferred
annuity contract where the annuity benefit payable is linked to a published
investment index. The annuity contract is paid for by a single premium. The
company will take its margins for expenses and mortality during deferment in the
rate it offers for conversion from the premiums to the initial level of annuity.
On death during the deferment period the benefit will be the indexed value of
the premium. Penalties may be imposed on withdrawals during the deferment
Outline the principal risks to the company on this contract.
a) Define how the asset share of a with- profit insurance contract may be
b) Explain how the asset share helps determination of reversionary and terminal
bonus rates to policyholders under the additions to benefit method.
a) Identify the principal types of data collected as part of the actuarial
mana gement of a life office and the purposes for which they are used.
b) An insurance company proposes to add the following options to its term
i) An option to convert to a whole life or endowment contract any time during
the term of the policy
ii) An option to renew the contract of assurance for a further period of years.
In each case no further medical evidence is obtained.
Comment on the additional risks for the insurance company in offering either of
these options and how they might be managed.
c) Describe and explain option cost in the context of mortality options.
d) Identify and describe two methods of pricing mortality options generally.
Mention any advantages and disadvantages with each.
a) Describe the basic methodology of actuarial modeling to project business
performance and management of the supervisory solvency position of a proprietary
b) You have been asked to investigate the consequences of a proposed investment
strategy on the company’s long term solvency position.
i) State with reasons whether you would use a deterministic or stochastic
ii) Describe how the results could be presented to the Directors, who are
non-actuaries, in a way that they could understand.
a) Describe the principal methods used by life insurance companies to recoup
initial expenses under unit- linked contracts and the key risks to the company
b) Explain what is meant by capital or initial units and how the method of
actuarial funding might be used in conjunction with these units to reduce the
new business strain under unit linked life insurance contracts.
You are the actuary of an established insurer that writes mainly medium sized
endowment policies in middle income markets. Your mortality experience is stable
and broadly in line with best estimate assumptions. You have recently reviewed
your reinsurance arrangements and are satisfied with the relatively high
retention levels in place .
Your marketing director is now planning to target affluent
sectors in urban areas and increase the emphasis on providing life insurance
protection. He asserts that policies will be significantly larger and there will
be shift in business towards whole of life. He further asserts that the more
affluent lives will be in a better state of health generally and this fact,
combined with the larger average premium per policy, means that existing
underwriting practices can be simplified by reducing the number of questions on
the application forms and increasing non medical limits.
a) Draft a short email response to the marketing director, indicating whether
or not you, as the actuary, support his proposal generally and setting out your
(including 2 marks for drafting)
b) Explain the changes that might need to be made to your reinsurance
c) Describe how you would judge whether reinsurance arrangements were optimal.
d) Describe how these proposals might affect the experience investigations in
your Control Cycle.