11/3/1998 01:13:45 PM
Location:
Phone:
Fax:
Sent by: David Corsi
To: Fbuster@juno.com
mjagan@ee.net
cc:
Subject: Answer Key (Use at your own risk) We assume no liability for
incorrect answers, solutions, or mental anguish and distress
subsequently caused
---------------------- Forwarded by David Corsi/Nationwide/NWIE on
11/3/1998 01:05:04 PM ---------------------------
11/3/1998 01:00:48 PM
Location:
Phone:
Fax:
Sent by: David Corsi
To: Jeffery T Hay/Nationwide/NWIE
cc:
Subject: Answer Key (Use at your own risk) We assume no liability for
incorrect answers, solutions, or mental anguish and distress
subsequently caused
This list of correct answers is a collaboration of Jeff and David's actual
responses and subsequent grading. We believe that Jeff scored around 81%
and Dave scored around 78%. These scores and answers are subject to change
without notification and/or taxation without representation. (Where'd that
come from???)
1. T
2. F (eg. When case reserves decrease more than Cal Yr Paid losses)
3. T (actually rate of change in frequency and EXPOSURE)
4. F (Net of Sub/salv)
5. F (inferior)
6. T
7. F???? (couldn't find reference)
8. F
9. T???? (depends on interpretation of amounts paid last 90 days column)
10. T
11. T
12. F (latest Acc. Yr inadequacy offsets prior years strengthening)
13. T
14. T (discount too much b/c they assume the later OCCURENCE payment and
reporting pattern, later b/c IBNR)
15. F (Best's Insurance Reports)
16. F (only preventative measures fair presentation, actuarial clarity,
identify actuary as source)
17. B 1.F probable/likely future sacrifice
2.T
3.F already occurred (not reported b/c what about IBNR reserves!!!)
18. 1.?
2.T
3.T
19.D 24,745
20.C
21.B
22.C $1150
23.A
24.D
25.D 13/16
26.B
27.E $450
28.A
29.E
30.C #3 false b/c this is an EXPLICIT recognition
31.D
32. Don't have a clue
33. Don't have a clue
34.C
35.E
36.A
37.a. Account for the future expected losses on the Unearned Premium
Reserve
b. (Ult Incurred Loss Ratio + Ultimate Incurred Exp Ratio - Earned
Prem Ratio - Invstmt Income Ratio) * (UnEPrem Res)
c. 1. Reduce Deferred Policy Acquisition Costs
2. Incur an additional liability if Prem Deficiency > DPAC
38. Liability -Reduces taxes & provides extra cushion for solvency
protection
Surplus-Encourages unbiased stated margins (no tax/profit incentives)
& still provides solvency cushion
39. 1,250,000
40. 165.53 (using McClenahan's method which assumes that loss payments
continue forever per geometric sereis)
or 162.97 (the actual correct interpretation of the question
since 50% paid in 6th mo. and 50% paid in 7th mo. and losses are
fully paid after the seventh month)
41.a. 1.Expected Loss Ratio x (Proportion of Loss Reported)
2.Direct Excess Loss Method
3.Indirect (Total Loss - Deductible Loss) Method
b.Pro 1.gives best estimates when little data
2.is most responsive to the actual Excess Loss experience in later
years
3.provides more stable LDFs than ELDFs from the Direct method
Con 1.is too dependent on ELR and proportion of loss paid for
each interval, not as responsive to actual Excess Losses
2.ELDFs are based on volatile, unstable, or (even non-existant data
where excess losses have not emerged yet)
3.is not based on actual Excess losses directly
42. 1,794 .8155 Ult LR
43.a. 1.Surplus relief
2.Reimburse primary co. for its aquisition costs
b. 1.Sliding Scale pays commissions varying with the incurred loss
ratio subject to a MAX and MIN
2.Contingent pays commissions based on a percentage of profits
44. 591,170
45. More Claims emergence and/or more likely adverse loss development at
time of the 2nd adjmt compared to 1st
46. 7,400??? (not real sure what went wrong here or what the right answer
is)
47. 875
48. Pricing, reserving, reinsurance, investment
49. 12 24 36 48 60
--- --- --- --- ---
20,000 34,091 45,000 53,500 56,000
50.a. >20M Attachment Point higher attachment points b.
<1945 or >1985 b/c time of
5-20M mean subject to less exposure
1945-70 pollution production
<5M 1970-85 &
exclusion word chgs
51. 79,915,000
52.a. 1993 76 b. 50% @ open/50% @ close & 90% reported in year
occurred/10% in following year
1994 300
1995 760
1996 2400
1997 6460
Don't forget to cap the IBNR % for the 50% share when opened at 10%
Earned Premiums for latest 2 years
53. Claims processing speedup overestimates reserves
Case reserve strengthening (paid to Incurred Ratios) understates
reserves
54. -3,340,435,000 deficient!!!! (This is the absolute correct answer if
you read this poor excuse for a question literally)
-18,750,000 deficient (also acceptable if one assumes that RY 96 Avg
Incur Claim = 1,330,000 NOT 1,330 printed
-18,750 (also acceptable if one assumes that Avg Paid Claim Closed are
not given in (000's) as printed in question.
Please note that taken literally the Trended Avg Paid Cost = 1,337,500
NOT 1,337.5\
55.a. Formula
b. Formula
56. 1.407
57. Implicit & Transfer mechanisms (Loss Portfolio Transfers & Structured
Settlements)
58.a. 85 & 30
b. 50,820
59. 1. Receive necessary info
2. Appointers must understand duties
3. Must be qualified
4. Appropraite venue
5. Contact prior actuary ..etc
60.a. 9,190
b. No b/c loss ratio deterioration ELM=7,786 %ofPrem=8,008
61. 1. Relative liklihood of estimates
2. Reporting context
62.a. 410,000
b. Ignore Cost + Improvements if < Market price values real estate
on conservative liquidation basis(what can sell it for)
63.a. (0.85 - 1.0) multiplicative reduces reins. recoverables
b. (+0.5% - +2.0%) "subtracted" from interest rate or negative
additive reduces discount increases undiscted liab
64.a. Depends on your interpretation. Full credit for equation
assumed.
Includes Agents balances, excludes Prepaid Aquisition adjustment
b. Depends on your interpretation. Refer to equation. Excludes both
65.a. Insurers obligations and Policyholders rights.
Egs. Short Duration is < 1year and premiums can be changed
Long Duration is > 1 year and level premiums
b. SD (HO,PPA, Term Life??)
LD (Guaranteed Group Deposit, Single Premium Life Annuities, Whole
Life, Title)
Good luck!!