SOA真题November2002Course8F

文章作者 100test 发表时间 2007:02:05 16:07:30
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COURSE 8 FINANCE - 1 - GO ON TO NEXT PAGE
FALL 2002
Morning Session
**BEGINNING OF EXAMINATION**
MORNING SESSION
Questions 1-4 pertain to the Case Study. Each question should be answered independently.
1. (5 points) Zest’s Chief Executive Officer, Mr. Zach, has been approached regarding the possible
acquisition of Cling To Life Insurance Company. Cling To Life has been successful in the
Group Long Term Disability market (LTD) and had premiums of 350 in the year 2000. Zest
feels that the purchase will be a way to rejuvenate its LTD business.
Cling To Life could be purchased for 100. If purchased, Cling To Life’s assets and liabilities
would be consolidated with those of Zest.
Cling To Life’s year-end 2000 balance sheet is as follows:
Assets
Public Bonds
Investment Grade 425
Below Investment Grade 225
Private Bonds (Investment Grade) 200
Commercial Mortgages (Investment Grade) 125
Real Estate 20
Cash and Other Short Term 5
Total Assets 1,000
Liabilities 950
Equity 50
Total Liabilities and Equity 1,000
(a) (1 point) Calculate the effect that the purchase of Cling To Life will have on Zest’s yearend
2000 required capital. Show your work.
(b) (4 points) Describe three options that Zest could use to fund the purchase of Cling To
Life. Assess the impact of each option on Zest’s balance sheet and RBC ratio.
Course 8F
Fall 2002
COURSE 8 FINANCE - 2 - GO ON TO NEXT PAGE
FALL 2002
Morning Session
Questions 1-4 pertain to the Case Study. Each question should be answered independently.
2. (12 points) You are a consulting actuary who has been hired by Mr. Cairns to review Zest’s
current Asset/Liability Manage ment (ALM) policy and practice. Mr. Cairns is cognizant of the
qualitative aspects of rating agencies’ analyses and feels that perhaps a reformulation of Zest’s
ALM policy might lead NARA to adopt a more favorable outlook of Zest.
(a) (6 points) Evaluate Zest’s current ALM policy, commenting on both the overall
approach and its appropriateness for each of the products in the three main product lines.
(b) (4 points) Propose refinements to Zest’s existing ALM strategy that may be viewed
favorably by NARA. Provide support for your suggestions.
(c) (2 points) Describe how a holistic approach could be used as Zest’s ALM process.
COURSE 8 FINANCE - 3 - GO ON TO NEXT PAGE
FALL 2002
Morning Session
Questions 1-4 pertain to the Case Study. Each question should be answered independently.
3. (12 points) Although NARA is the pre-eminent insurance company rating agency, Zest is
concerned that it may be imprudent to rely on the ratings of only one agency. Zest is
contemplating approaching Standard &. Poor’s for a second rating, but is very concerned as to
how Standard &. Poor’s might view its liquidity position. Zest’s CFO has asked you to test
Zest’s results under the Standard &. Poor’s liquidity and earnings models.
Additional year-end 2000 information about Zest is as follows:
•...The Premium Stabilization Reserve for the Group-LTD line is 1050.2.
•...The Unearned Premium Reserve for the Group-LTD line 112.3.
•...The Unearned Premium Reserve for the Individual Term Insurance line is 36.1.
•...All private placement bonds are 144A bonds.
•...All investments are in securities and assets from developed count ries.
•...All of the CMOs are VADMs or PACs.
•...Investment grade commercial mortgages and non-CMO public bonds are split 25%
NAIC ‘1’ and 75% NAIC ‘2’.
•...Below investment grade commercial mortgages and non-CMO public bonds are split
80% NAIC ‘3’ and 20% NAIC ‘4’.
•...Equities are split 10% investment grade preferred stock and 90% common stock.
•...All equity securities held are from unaffiliated, publicly-traded companies.
You have access to the following information from Standard &. Poor’s insurance liquidity model.
Insurance Liquidity Tables
Table 1 Liability Risk Factors
Liability Immediate Scenario (%) Ongoing Scenario (%)
Traditional life 30 50
Term life 50% of UEPR 50% of UEPR
Interest-sensitive life 50 50
Deferred annuities 90 100
Single -premium immediate annuities 100 100
Other individual annuities 100 100
Supplementary contracts 30 50
Variable life and annuities 0 0
Individual accident and health 50% of UEPR 50% of UEPR
Individual disability 50% of any cash value 50% of any cash value
Structured settlements 100 100
GICs and funding agreements 100 100
Group annuities and other deposit
funds
100 100
Group accident and health 50% of PSR and UEPR 50% of PSR and UEPR
Group life 50% of PSR and UEPR 50% of PSR and UEPR
Group long-term disability 50% of PSR and UEPR 50% of PSR and UEPR
Health claims reserves 100 100
COURSE 8 FINANCE - 4 - GO ON TO NEXT PAGE