course5solutions_1101 - NOVEMBER 2001 SOCIETY OF ACTUARIES...

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Course 5: November 2001 GO ON TO NEXT PAGE NOVEMBER 2001 SOCIETY OF ACTUARIES COURSE 5 SOLUTIONS
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Course 5: November 2001 GO ON TO NEXT PAGE November 2001 Society of Actuaries COURSE 5 MORNING SESSION APPLICATION OF BASIC ACTUARIAL PRINCIPLES SECTION A-WRITTEN ANSWER SOLUTIONS
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COURSE 5: November 2001 - 3 - GO TO NEXT PAGE Afternoon Session **BEGINNING OF EXAMINATION 5** MORNING SESSION Question 1 (a) - Charge higher premium than for non-par - Allows the premium to be guaranteed - Offset premium by paying dividends - Results in lower net cost of policyholder - Dividends allowing the sharing of good experience on the block of business, including favorable mortality, interest, lapse and tax experience - Necessary to compete in their selected market (b) - Dividends are set using realistic assumptions - Desired competitive position - Ensure that agent and policyholder expectations are realistic in dividends illustrated - Set to achieve certain funding goals (high premium/high dividend, limited pay) - Reduce the likelihood that dividends may have to be reduced in the future – this can lead to a loss of confidence in the company (c) - Concern that companies will pay insufficient dividends to policyholders - Concern that companies will pay more dividends than it can afford, thereby endangering solvency - Ensure equitable distribution of profit to shareholders and policyholders - Ensure equitable distribution of dividends among policyholders of different generations and classes, whose policies generated the profits - Ensure that any illustrations shown to prospective or current policyholders are reasonable
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COURSE 5: November 2001 - 4 - GO TO NEXT PAGE Afternoon Session Question 2 Rating variables that should be considered include: Age and Gender Medical claim costs vary greatly among different age bands, and between males and females. Usually claim data are sorted according to age and gender. Age/gender studies are done every few years to develop age/gender factors. Sometimes age/gender factors are developed for different medical expense categories such as drugs or hospital. Also, age/gender factors may take into account the medical plan design such as deductible and coinsurance. Each method for determining exposure units is subject to different types of misestimating of claims costs. Plan of Benefits Claim costs are related to the plan itself. Factors such as coinsurance, deductible, maximum limits, tightness of exclusions, out of pocket benefits, and managed care features greatly affect claim costs. Cost-sharing stipulated by different plan designs greatly affects claim costs and must be taken into account. Different plan designs result in different utilization patterns. When plan has choices, employees choose the benefits that are most advantageous to them (= anti- selection).
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This note was uploaded on 03/27/2012 for the course MATHEMATIC 4523 taught by Professor Zhangqiang during the Spring '12 term at City University of Hong Kong.

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course5solutions_1101 - NOVEMBER 2001 SOCIETY OF ACTUARIES...

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