Exam 7-Canada - Department of Mathematics | Illinois State University

Transcription

CASUALTY
ACTUARIAL
SOCIETY
Examinabon
Mary Frances Miller
Vice President-Admissions
Thomas G. Myers
Chairperson
Examination Committee
Exam 7-Canada
Annual Statement,
Taxation, and Regulation
MAY I,2001
INSTRUCTIONS
Committee
Genera/ Officers
Jeffrey A. Englander
Beth E. Fitzgerald
Larry A. Haefner
Glenn G. Meyers
Arlene F. Woodruff
Richard P. Yocius
4 HOURS
TO CANDIDATES
1.
This 100 point examination consists of 97 questions divided into two sections. Section I contains
40 true/false questions worth 0.5 (one-half) point each. Section II contains 57 problem and essay
questions worth a total of 80 points.
2.
To answer the true/false questions. use the short-answer card provided and a number 2 or HB
pencil. Mark your short-answer card during the examination period. No additional time will be
allowed for this after the exam has ended. Please make your marks dark and fill in the spaces
completely. Fill in that it is Spring 200 1, and the exam number, 7-Canada.
Darken the spaces corresponding to your Candidate ID number. Five rows are available. If your
Candidate ID number is fewer than 5 digits, include leading zeros. (For example, if your
Candidate ID number is 987, consider that your Candidate ID number is 00987, enter a zero on
the first row, 0 on the second row, 9 on the third row, 8 on the fourth row, and 7 on the fifth
[last] row.) Please write in your Candidate ID number next to the place where you darken the
spaces for your Candidate ID number. Your name, or any other identifying mark, must not
appear on the short-answer card.
For the true/false questions. mark “A” for “true” on the short-answer card, and mark “B” for
“false” on the short-answer card. In grading the true/false questions, the point value of the
question will be subtracted for each incorrect answer. No points will be added or subtracted for
responses left blank.
3.
For the problem and essay questions, the number of points for each full question or part of a
question is indicated at the beginning of the question or part. Answer these questions on the lined
sheets provided in your Examination Envelope. Use && pencil or ink.
Write your Candidate ID number and the examination number, 7C, at the top of each answer
sheet. Your name, or any other identifying mark, must not appear.
Do not answer more than one question on a single sheet of paper. Write on onlv the lined side of
the Paper, and be careful to give the number of the question you are answering on each sheet.
The answer should be concise and confined to the question as posed. When a list of a specific
size is requested, do not offer more items in your list than the number requested. For example, if
you are requested to list three items, only the first three responses will be graded.
CONTINUE
0200 1 Casualty Actuarial
Society
TO NEXT PAGE OF INSTRUCTIONS
In order to receive full credit or to maximize partial credit on mathematical and computational
questions, you must clearly outline your approach in either verbal or mathematical form, showing
calculations where necessary.
4.
Do all problems until you reach the last page of the examination where “END OF
EXAMINATION” is marked.
5.
All questions should be answered according to the Canadian accounting practices and principles,
unless specifically instructed otherwise. SAP refers to Statutory Accounting Principles, and
GAAP refers to Generally Accepted Accounting Principles.
6.
Your Examination Envelope is pre-labeled with your Candidate ID number, name, exam number,
and test center. Do not remove this label. Keep a record of your Candidate ID number for future
inquiries regarding this exam.
7.
At the beginning of the examination, check through the exam booklet for any missing or defective
pages. The supervisor has additional exams for those candidates who have defective exam
booklets.
8.
Candidates must remain in the examination center until two hours after the start of the
examination. You may leave the examination room to use the restroom with permission from the
supervisor. To avoid excessive noise during the end of the examination, candidates may not leave
the exam room during the last fifteen minutes of the examination.
9.
At the end of the examination, place the short-answer card and all answer sheets in the
Examination Envelope. Please insert your answer pages in your envelope in question number
order. Insert a numbered page for each question, even if you have not attempted to answer that
question. BEFORE YOU TURN IN THE EXAMINATION ENVELOPE TO THE
SUPERVISOR. BE SURE TO SIGN IT IN THE SPACE PROVIDED ABOVE THE CUT-OUT
WINDOW.
Anvthing written in the examination booklet will not be graded.
the answer sheets will be graded.
10
Onlv the short-answer
card and
If you have brought a self-addressed, stamped envelope, you may put the examination booklet and
scrap paper inside and submit it separately to the supervisor. It will be mailed to you. (Do not
put the self-addressed stamped envelope inside the Examination Envelope.)
If you do not have a self-addressed, stamped envelope, please place the examination booklet in
the Examination Envelope and seal the envelope. You may not take it with you. Do not put
scrap paper in the Examination Envelope. The supervisor will collect your scrap paper.
Candidates may obtain a copy of the examination by contacting the CAS Office.
All extra answer sheets, scrap paper, etc., must be returned to the supervisor for disposal.
CONTINUE
TO NEXT PAGE OF INSTRUCTIONS
11.
Candidates must not give or receive assistance of any kind during the examination. Any cheating,
any attempt to cheat, assisting others to cheat, or participating therein, or other improper conduct
will result in the Casualty Actuarial Society disqualifying the candidate’s paper, and such other
disciplinary action as may be deemed appropriate within the guidelines of the CAS Policy on
Examination Discipline.
12.
An examination survey and postage-paid reply envelope are included with the examination. No
postage is necessary for surveys mailed within the United States. Candidates mailing the survey
outside the United States should use the courtesy reply envelope distributed by your exam
supervisor. Please complete the survev and leave it with the examination supervisor. or take the
survey and envelope with you when leaving. the examination center. Please submit the survey to
the CAS Office bv Mav 25, 2001. Please do not enclose the survey in the Examination Envelope.
END OF INSTRUCTIONS
EXAM 7 CANADA, SPRING 2001, SECTION I
SECTION I, QUESTIONS
1
- 40, TRUE/FALSE
QUESTIONS
(S POINT EACH)
1.
According to Linden, Canadian Tort Law, the standard of care adopted by
negligence law is an objective one.
2.
According to Klar et al., Remedies in Tort, pecuniary losses that are incurred prior
to trial are usually recovered by way of general damages.
3.
According to Klar et al., Remedies in Tort, the existence of undue profit would
not be a consideration when determining if an award for punitive damages should
be made.
4.
In Remedies in Tort, Klar et al. define special damages as those that can be
measured by fairly precise mathematical assessment.
5.
According to Klar et al., Remedies in Tort, where an injured party incurred
expenses and reasonably believed that those expenses would improve his health,
the court will consider the effectiveness of the treatment in deciding whether to
award damages.
6.
According to Klar et al., Remedies in Tort, in a fatal accident case, where the
spouse inherits the marital home, damages are reduced in recognition of the
earlier inheritance of the asset.
7.
According to Klar et al., Remedies in Tort, where a negligent party is deceased,
the injured party may commence a cause of action against the negligent party’s
estate.
8.
According to Hensler et al., Trends in Tort Litigation, compensation to plaintiffs
for asbestos claims net of all legal fees comprises less than 50% of total per claim
expenditures.
9.
According to Baer and Rendall, Cases on the Canadian Law of Insurance,
members of a reciprocal insurance exchange are held jointly liable for award
payments.
10.
According to Baer and Rendall, Cases of the Canadian Law in Insurance, in
recent years the federal government has not attempted to regulate the form and
content of insurance contracts.
11.
In Life Insurance Laws of Canada (Common Law Provincesl, McDonald states
that under the new federal Insurance Companies Act, an insurance company can
be incorporated by a Special Act of Parliament.
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1
12.
In Canadian Insurance Contracts Law in a Nutshell, Brown states that having an
insurable interest in the object insured is a precontractual question for indemnity
insurance.
13.
According to Baer and Rendall, Cases on the Canadian Law of Insurance, in
Broadhurst & Ball v. American Home Assurance Co., the judge found that where
there is more than one insurer, the costs of defending an action should be shared
pro rata in proportion to the coverages afforded by each insurer.
14.
According to Ettlinger et al., State Insurance Regulation, research is consistent in
showing that states with competitive rating laws tend to produce higher loss ratios
than states with noncompetitive rating laws.
15.
According to Hall, Mercer Handbook of Canadian Pension and Benefit Plans,
Employment Insurance premiums paid by the employee are a tax-deductible
expense to the employee.
16.
According to Hall, Mercer Handbook of Canadian Pension and Benefit Plans, the
calculation of the CPP/QPP retirement pension allows certain periods to be
dropped out when average past earnings are computed.
17.
According to Hall, Mercer Handbook
level of retirement pension under the
was set to provide, together with Old
approximately 40% of income, up to
18.
According to Hall, Mercer Handbook of Canadian Pension and Benefit Plans, all
provincial hospital and medical insurance plans cover emergency ambulance
service.
19.
According to Hall, Mercer Handbook of Canadian Pension and Benefit Plans, an
employee has a choice of taking action against other third parties for negligence
or claiming workers’ compensation benefits.
20.
According to Analysis of Workers’ Compensation Laws, most jurisdictions
permit employees in an exempted class to be brought in voluntarily by the
employer or the administrative agency order.
21.
According to KPMG et al., “Motor Vehicle Insurance in British Columbia - At
the Crossroads, Volume II,” the Manitoba Personal Injury Protection Plan does
not have a maximum amount payable for rehabilitation costs.
22.
According to Groupement des assureurs automobiles, Risk Sharing Plan Procedures Manual; By-Law No.7 - Risk Sharing Plan, in the case of a private
passenger risk, only third party liability coverage is eligible for transfer.
CONTINUED
of Canadian Pension and Benefit Plans, the
Canada Pension Plan/Quebec Pension Plan
Age Security pension, a replacement ratio of
the national average wage.
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2
23.
According to Insurance Accounting and Systems Association, Property-Casualty
Insurance Accounting, GAAP requires that undeclared policyholder dividends be
accrued at the balance sheet date, using an estimate of the amount to be paid.
24.
According to Insurance Accounting and Systems Association, Property-Casualty
Insurance Accounting, GAAP requires that a liability be established for
reinsurance recoverable on unpaid losses from unauthorized reinsurers.
25.
According to the Canadian Council of Insurance Regulators, “Annual Statement
Instructions P&C- 1,” Generally Accepted Accounting Principles (GAAP)
requirements may from time to time supercede statutory requirements for the
preparation of the P&C- 1.
26.
According to Ghezzi, “Actuarial Perspective on Property/Casualty Redlining
Issues,” the NAIC has said rate adequacy is not a factor that has contributed to the
availability and affordability problem in urban areas.
27.
According to the Office of the Superintendent of Financial Institutions,
“Guideline on Accounting for Reinsurance of Short-Term Insurance Contracts by
Property and Casualty Insurance Enterprises,” if a loss arises from a retroactive
reinsurance transaction, it shall be deferred and amortized over the settlement
period.
28.
According to the Office of the Superintendent
“Guideline on Accounting for Reinsurance of
Property and Casualty Insurance Enterprises,”
ceding enterprise is released of its obligations
29.
According to the Insurance Bureau of Canada, “Discounting of Loss Reserves in
the Property and Casualty Insurance Industry Phase II,” the range of acceptability
for the Minimum Asset Test should be increased from its current level if
discounting of claims liabilities is introduced in the annual return.
30.
According to the Office of the Superintendent of Financial Institutions,
“Accounting for Property Casualty Actuarial Liabilities,” the Canadian Institute
of Actuaries must develop appropriate guidance on asset/liability matching for its
members as a precondition for allowing P&C insurance companies to account for
actuarial liabilities on a discounted basis.
31.
According to the Insurance Bureau of Canada, “Discounting of Loss Reserves in
the Property and Casualty Insurance Industry Phase II,” the subcommittee asked
that the provision for adverse deviation be determined at a detailed level, almost
the same level as the grouping of losses that the actuary used to determine the
ultimate values of the gross and net reserves.
CONTINUED
of Financial Institutions,
Short-Term Insurance Contracts by
under a fronting arrangement, a
to the policyholders.
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3
32.
According to the Canadian Insurance Accountants Association, the fair value
claims liability is at best a surrogate for market value claims liability.
33.
According to Cantin and Trahan, “Study Note on the Actuarial Evaluation of
Premium Liabilities,” equity in the unearned premiums is defined as the actual
profits on the unexpired policies.
34.
According to the Office of the Superintendent of Financial Institutions, “Annual
Disclosure Requirements (Property and Casualty Insurance Enterprises),” policy
liabilities include salvage and subrogation receivables.
35.
“Canadian Tax Guide for Property and
According to PricewaterhouseCoopers,
Casualty Insurance Enterprises,” assumed reinsurance premiums are not subject to
provincial premium taxes.
36.
According to Canadian Council of Insurance Regulators, “Explanatory Notes for
the Minimum Capital Test (MCT),” one of the stated benefits of the test is that
MCT results for P&C insurers will now be directly comparable to those for other
types of financial institutions.
37.
According to Canadian Council
Capital Test (MCT) for Property
holding a controlling interest in
surplus capital of the subsidiary
the parent P&C insurer.
38.
According to the “Insurance Companies Act,” the actuary of a company may
issue a legally binding order to the board directing the company to increase the
assets of the company.
39.
According to Canadian Insurance Accountants Association, “Information Circular
HR- 17 - The Insurance Companies Act Reports and Filings,” the Superintendent
can impose a discretionary level and extent of reporting and filings without any
limitation by statute, regulation, or industry input.
40.
According to Troxel and Bouchie, Property-Liabilitv Insurance Accountinp and
Finance, aggregate reserve development data for all insurers included in the IRIS
program generally show that industry reserves are adequate.
of Insurance Regulators, “Guideline - Minimum
and Casualty Insurers,” a parent company
a regulated financial subsidiary may recognize the
if the subsidiary is determined to be available to
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4
EXAM 7 CANADA,
SECTION II, QUESTIONS
41.
SPRING 2001, SECTION II
41- 97, WRITTEN ANSWER QUESTIONS.
(0.75 point)
According to Linden, Canadian Tort Law, there are institutional
effectiveness of tort law as a tool for social reform.
limitations
on the
Identify three such limitations.
42.
(1.25 points)
According to Linden, Canadian Tort Law, what are the five major defenses for
strict liability?
43.
(3 points)
Linden, Canadian Tort Law, discusses the tort elements of cause-in-fact
proximate cause.
a.
(0.5 point)
Distinguish
b.
and
the tort element of cause-in-fact
from that of proximate
cause.
(0.5 point)
Which of these two elements has demanded more attention and generated
more interest on the part of the legal community? Explain your answer.
c.
(0.5 point)
Identify and describe one test used to establish cause-in-fact.
d. (1.5 points)
Identify and describe two tests that have been used to establish proximate
cause. Which test is more forgiving to the defendant and why?
44.
(1 point)
Based on Linden, Canadian Tort Law, describe how the courts determine whether
an activity creates an unreasonable risk of harm.
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5
EXAM 7 CANADA, SPRING 2001, SECTION II
45.
(1 point)
Based on Linden, Canadian Tort Law, describe the activities for which a
government agency will be immune from tort liability.
46.
(2.75 points)
Klar et al., Remedies in Tort, discusses nonpecuniary
a.
(0.25 point)
Define nonpecuniary
b.
loss.
(1 point)
What four components
c.
loss.
make up this class of loss?
(1.5 points)
Identify and describe the three approaches that have been used to measure
damages for nonpecuniary loss.
47.
(1 point)
Klar et al., Remedies in Tort, discuss aggravated damages.
a.
(0.5 point)
What are aggravated damages?
b.
(0.5 point)
How do they differ from punitive damages?
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48.
(2 points)
According to State of New York Advisory Commission on Liability Insurance,
“Reform of the Tort Law,” the commission investigated the pros and cons of
imposing a cap on noneconomic damages in suits against public entities.
a.
(1 point)
Give four arguments
b.
in favor of imposing such a cap.
(1 point)
Give four arguments against imposing such a cap.
49.
(1 point)
Based on Hallman and Hamilton, Personal Insurance: Life, Health and
Retirement, describe how a worker might fall into each of the situations described
below in determining eligibility for OASDHI benefits. If a situation is
impossible, explain why.
a.
(0.5 point)
The worker is fully insured but not currently insured.
b. (0.5 point)
The worker is currently insured but not disability insured.
50.
(1 point)
Hensler et al., Trends in Tort Litigation, discuss the use of alternative dispute
resolution for various categories of tort litigation.
a.
(0.5 point)
State two reasons alternative dispute resolution is often relied upon for auto
accident cases.
b.
(0.5 point)
State two reasons alternative dispute resolution is not commonly
product liability cases.
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7
used for
51.
(1 point)
Hensler et al., Trends in Tort Litigation, discuss contingency
a.
(0.5 point)
State two criticisms of contingency
b.
fees.
(0.5 point)
State two ways in which lawyers justify contingency
52.
fees for tort claims.
fees.
(1.5 points)
Baer and Rendall, Cases of the Canadian Law in Insurance, compare elements of
private and social insurance.
a.
(0.75 point)
Identify three differences
between private and social insurance.
b. (0.75 point)
Identify three similarities between private and social insurance.
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53.
(2.25 points)
B. R. McDonald, Life Insurance Laws of Canada (Common Law Provinces),
describes “The Insurance Reference Case” involving the regulation of insurance.
a.
(1 point)
Describe the facts of the case.
b.
(0.25 point)
How did the Judicial Committee
c.
of the Privy Council rule on this case?
(1 point)
What two actions did federal Parliament take as a direct consequence
decision?
54.
of this
(1 point)
As discussed by Brown, Canadian Insurance Contracts Law in a Nutshell, the
body of law that applies distinctively to insurance contracts can be explained by
reference to a few underlying principles.
a.
(0.5 point)
Define the indemnity principle.
b.
(0.5 point)
What is the main objective of the indemnity principle?
55.
(2 points)
Baer and Rendall, Cases of the Canadian Law in Insurance, describe the various
approaches regarding the relationship between tort recovery and collateral sources
of compensation.
Identify and describe Professor Fleming’s four approaches to loss sharing
between collateral sources and tort recovery.
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9
56.
(1.5 points)
According to Zurich Insurance Company vs. Ontario Human Rights Code,
Section 21 of the Human Rights Code states that a discriminatory practice is
“reasonable” if it is based on a sound and accepted insurance practice and there is
no practical alternative.
In a dissenting opinion, Justice McLachlin stated that the insurer could not be
excused for its failure to demonstrate reasonable alternatives. Give his three
reasons for this statement.
57.
(1.25 points)
According to Ettlinger et al., State Insurance Regulation, risk classification
systems are used to group similar loss exposures into homogeneous groups.
a.
(0.75 point)
State three benefits of risk classification
losses.
b.
(0.5 point)
Describe an “economically
58.
systems that equate rates to expected
efficient” classification
system.
(0.5 point)
Greene, “Government Insurers,” describes situations where government works in
partnership with private insurers. Give two examples where government acts as a
partner with private insurers.
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10
59.
(2.5 points)
The Office of the Superintendent of Financial Institutions, “Earthquake Exposure
Sound Practices Guidelines,” identifies common parameters used in the
measurement of Probable Maximum Loss (PML).
a.
(1 point)
Identify four risk characteristics
b.
(0.5 point)
How is the PML for automobile
c.
to be included in the PML calculation.
physical damage calculated?
(1 point)
Describe four factors to consider in an analysis of affiliated or nonaffiliated
reinsurance.
60.
(1 point)
Insurance Services Office, Inc., Sunerfund and the Insurance Issues Surrounding
Abandoned Hazardous Waste Sites, mentions that the traditional accident year
loss development method used by actuaries to estimate ultimate payouts can result
in substantial estimation errors.
Describe two reasons advanced by the study for this phenomenon.
61.
(1 point)
According to Hall, Mercer Handbook of Canadian Pension and Benefit Plans,
employers can take a number of measures to control and manage prescription
drug costs. Two such measures are generic substitution and therapeutic
substitution.
Distinguish
62.
between these two alternative measures.
(1 point)
According to Hall, Mercer Handbook of Canadian Pension and Benefit Plans, the
Canada Health Act sets out the conditions that a provincial health program must
meet to be eligible for unreduced federal funding. Briefly describe four of these
conditions.
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11
63.
(1 point)
Based on Canadian Institute of Actuaries, “Task Force on Health Care
Financing,” identify four of the essential components of a managed care program.
64.
(1 point)
Chamber of Commerce of the United States, Analysis of Workers’ Compensation
Laws, discusses second-injury funds.
a.
(0.5 point)
Why were second-injury
funds developed?
b. (0.5 point)
Why are such funds advocated?
65.
(0.5 point)
According to Ontario Insurance Commission, Section 41 l/41 2 Filing Guidelines
for Proposed Revisions to Automobile Insurance Rates and Risk Classification
Systems, under certain conditions, the OIC allows insurers to rely on outside data
in the rate filing process. Describe fully these two conditions.
66.
(1 point)
Based on Ontario Insurance Commission, Section 41 l/41 2 Filing Guidelines for
Proposed Revisions to Automobile Insurance Rates and Risk Classification
Systems, identify the two elements that an actuary must certify in the “Certificate
of the Actuary.”
67.
(1.5 points)
Based on Ghezzi, “Actuarial Perspective on Property/Casualty Redlining Issues,”
describe three types of analyses that actuaries could perform to assist their
companies in evaluating potential challenges to their underwriting and pricing
policies.
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12
68.
(1 point)
According to KPMG et al., “Motor Vehicle Insurance in British Columbia
the Crossroads,” vehicle insurance cost comparisons between jurisdictions
difficult to perform. Give four reasons for this phenomenon.
69.
- At
are
(1.25 points)
According to KPMG et al., “Motor Vehicle Insurance for British Columbia - At
the Crossroads,” the terms “fault” and “no-fault” portray a simplistic version of a
reality that does not exist.
a.
(0.75 point)
Describe three reasons advanced for this assertion.
b.
(0.5 point)
How would the authors of this study prefer to label these two systems for
objective comparison purposes?
70.
(1.5 points)
Hamilton and Malecki, Personal Insurance: Property & Liability, discuss
mechanisms for providing auto insurance to the residual market. Two of these
mechanisms are automobile insurance plans and the Maryland Automobile
Insurance Fund.
a.
(0.5 point)
State the other two mechanisms
market.
b.
for providing auto insurance to the residual
(0.5 point)
How are rates set in each mechanism
c.
stated in part a. above?
(0.5 point)
How are the profits and losses shared between companies
market auto insurance program stated in part a. above?
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13
for each residual
71.
(1.5 points)
Insurance Accounting and Systems Association, Pronertv-Casualty
Accounting, describes various derivative investments.
a.
Insurance
(0.75 point)
What is a “cap ?” Explain why an insurance company would purchase a
“cap.”
b.
(0.75 point)
What is a “floor?”
“floor.”
72.
Explain why an insurance company would purchase a
(1.25 points)
According to Insurance Accounting and Systems Association, Property-Casualtv
Insurance Accounting, repurchase agreements have gained widespread acceptance
in recent years.
a.
(0.5 point)
What is a repurchase agreement?
b. (0.75 point)
State three advantages of repurchase agreements.
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73.
(1 point)
Based on Insurance Accounting and Systems Association, Proper@-Casualtv
Insurance Accounting, state how each of the following is typically valued
according to statutory accounting principles.
a.
(0.25 point)
High quality bonds
b.
(0.25 point)
Low quality bonds
c.
(0.25 point)
Common stocks, not in subsidiaries or controlled or affiliated companies
d. (0.25 point)
Real estate
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74.
(3 points)
Calculate OSFI’s Minimum Asset Test for year ending December 3 1,2000, for a
Canadian company, using the following information.
Total Assets
292,000
Deferred Policy Acquisition
Recoverable
Expenses
4,900
20,000
from Reinsurers
235,000
Total Liabilities
Gross claims incurred during preceding
12 months
73,800
Reinsurance ceded during preceding 12 months on claims
incurred during preceding 12 months
3,690
Margin required on unpaid claims and unearned premiums
24,300
Gross written premium in 2000
94,000
Margin required for claims incurred
18,400
Assume that the company does not write any Accident and Sickness
business.
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75.
(1.5 points)
According to Feldblum, “Direct Charges and Credits to Surplus,” improper
estimates of invested capital distort the premium rates indicated by financial
pricing models.
Consider the following statement, “For economic pricing analyses one must use
economic capital requirements, not statutory numbers.”
a.
(0.5 point)
Would Feldblum agree with this statement?
b.
Why or why not?
(1 point)
Feldblum asserts that the capital invested in an insurance company is a
function of several factors. State four of these factors.
76.
(1.25 points)
During 2000, ABC Insurance Corporation reissued 100 shares of treasury stock
for $50 a share. The par value of the stock is $1 per share. ABC reacquired the
stock in 1999 for $40 a share.
Describe how this transaction impacts the various line items on pages 2 and 3 of
ABC Insurance Corporation’s 2000 Annual Statement. Ignore all tax issues.
77.
(1.5 points)
Based on Office of the Superintendent of Financial Institutions Canada,
“Accounting for Property Casualty Actuarial Liabilities,” describe the three
mandatory disclosure requirements regarding actuarial liabilities that would apply
in addition to the financial statement disclosure requirements in the CICA
Handbook.
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17
78.
(1 point)
You are the actuary of ABC, a property and casualty insurance company. The
President is considering ceding a loss portfolio transfer to a major reinsurer. He
seeks your advice on the accounting treatment of the proposed transaction, as
required under “Accounting for Reinsurance of Short-Term Insurance Contracts
by Property and Casualty Insurance Enterprises” issued by the Office of the
Superintendent of Financial Institutions.
a.
(0.25 point)
What do you advise your President if, under the proposed contract the
premiums paid to the reinsurer exceed the outstanding losses ceded?
b.
(0.25 point)
What do you advise your President if, under the proposed contract the
outstanding losses ceded to the reinsurer exceed the premiums paid?
c.
(0.50 point)
What do you advise your President if, under the proposed contract the contract
contains a clause that would delay the timely reimbursements of the claim by
the reinsurer?
79.
(2 points)
Canadian Insurance Accountants Association, “Fair Value of Claims Liabilities,”
discusses the measurement of various categories of risk.
a.
(1 point)
How is credit risk measured in the determination
liabilities?
b.
of fair value claims
(1 point)
Calculate the provision for adverse deviation applied to the average yield,
related to timing risk, given the following information. Show all work.
l
l
l
Average Yield = 7%
Duration = 3 years
Timing Risk = 12%
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80.
(1.5 points)
According to Office of the Superintendent of Financial Institutions Canada,
“Annual Disclosure Requirements (Property and Casualty Insurance
Enterprises),” what three steps should an insurance enterprise take when
disclosing its risk management and control practices?
81.
(1.5 points)
Briefly describe each of the three Parts of the 2000 Insurance Expense Exhibit.
82.
(2 points)
Based on Cantin and Trahan, “Study Note on the Actuarial Evaluation of
Premium Liabilities,” and the following information, estimate the discounted
equity in the unearned premium reserve. Show all work.
Unearned Premiums - Voluntary Business ($000)
$150
Unearned Premiums - Facility Association
$10
($000)
Expected Claims and Allocated Loss Adjustment
- Voluntary Business ($000)
Expenses
$100
Expected Claims and Allocated Loss Adjustment
- Facility Association ($000)
Expenses
$9
Maintenance
.02.5
Expense Ratio
Selected Internal Adjustment
Expense Ratio
Discount from Average Accident Date to Evaluation Date
Note:
.035
.978
There are no contingent commissions and no reinsurance
contracts, and expected claims for both voluntary business and
Facility Association are discounted to the average accident date.
CONTINUED
ON NEXT PAGE
19
83.
(1.5 points)
“Financial Reporting for the Property & Casualty
PricewaterhouseCoopers,
Insurance Industry,” discusses the roles of various groups of auditors.
a.
(0.5 point)
What is the role of the company’s
b.
internal audit group?
(0.5 point)
What is the role of the shareholders’
c.
auditors?
(OS point)
What are the functions of the audit committee?
84.
(1 point)
According to Office of the Superintendent of Financial Institutions Canada,
“Annual Disclosure Requirements (Property and Casualty Insurance
Enterprises),” liquidity risk is a significant risk for P&C insurance companies.
a.
(0.25 point)
Define liquidity risk.
b.
(0.5 point)
A management committee of the Board of your federally-regulated
company
has implemented a liquidity management policy. What minimum disclosure
is required with regards to the description of this policy and its performance?
c.
(0.25 point)
What reporting requirement of part b. above would be different for a branch of
a foreign P&C insurance company that does not prepare annual financial
statements?
CONTINUED
ON NEXT PAGE
20
85.
(1.5 points)
Based on Insurance Bureau of Canada, “Discounting of Loss Reserves in the
Property and Casualty Insurance Industry Phase II,” and the following
information, calculate the total combined percentage impact of Discounting &
PFAD. Show all work.
Property
215,000
Liabilitv
220,000
Best Estimate of Claims
Liabilities (undiscounted)
200,000
210,000
PFAD as a Percentage of
Discounted Liabilities
10.00%
20.00%
5.00%
25.00%
Carried Claims Liabilities
Discount Percentage
86.
(2 points)
“Canadian Tax Guide for Property and Casualty
PricewaterhouseCoopers,
Insurance Enterprises,” discusses various taxes levied against Canadian insurers.
a.
(1 point)
Identify four types of provincial taxes levied against an insurer in Ontario.
b.
(0.5 point)
A business insuring a fleet of autos in the province of Alberta is considering
the magnitude of its self-insured retention. Which of the taxes listed in part a.
above may have an impact on this decision? Explain your answer.
c.
(0.5 point)
The province of Newfoundland
part b. above for administrative
is done.
CONTINUED
has eliminated the type of benefit described in
services only (ASO) plans. Describe how this
ON NEXT PAGE
21
87.
(1.5 points)
According to Canadian Council of Insurance Regulators, “Explanatory Notes for
the Minimum Capital Test (MCT),” three areas of risk exposure are not
adequately incorporated under the “excess of assets” test.
Identify and briefly describe these three areas for improvement.
88.
(1.25 points)
According to Canadian Council of Insurance Regulators, “Guideline - Minimum
Capital Test (MCT) for Property and Casualty Insurers,” the risk of default for
recoverables from reinsurers arises from both credit and actuarial risk.
a.
(0.5 point)
Define credit risk and actuarial risk.
b.
(0.75 point)
Describe the capital factors applied to recoverables
to reflect these two risks.
89.
from registered reinsurers
(1.5 points)
As the appointed actuary of XYZ, a Canadian property and casualty insurer, you
have identified matters that you believe may adversely affect the financial health
of the company. Before you have a chance to report your findings, the CEO
becomes aware of the results of your investigations.
a.
(0.5 point)
What responsibilities does the “Insurance Companies
your employment is immediately terminated?
Act” impose upon you if
b. (0.5 point)
What responsibilities does the “Insurance Companies
your employment is not terminated?
c.
Act” impose upon you if
(0.5 point)
In general terms, how has the Act been changed to ensure that the directors of
the company are motivated to respond to the issues you have raised?
CONTINUED
ON NEXT PAGE
22
90.
(0.5 point)
Based on Inspecteur General des Institutions Financieres,
from outside Quebec,” answer the following.
a.
(0.25 point)
What is the primary intent of the memorandum
General’s office?
b.
“Insurers with charters
issued by the Inspecteur
(0.25 point)
What additional information
request?
does the Inspecteur General reserve the right to
CONTINUED
ON NEXT PAGE
23
91.
(2 points)
You are the consulting actuary for an investor examining two companies (A & B)
for purchase. The investor has indicated to you that he would like to purchase the
company with the lowest two-year underwriting (U/W) ratio as defined in A.M.
Best Canada Ltd., “Best’s Key Rating & Statistical Guide, Property and
Casualty.”
a.
(1 point)
Based on the information below, calculate the current two-year U/W ratio for
companies A & B separately. Show all work.
(%OtOS)
(Net premiums earned)2000
(Net premiums earned)1999
(Net claims incurred)2000
(Net claims incurred)iggg
(U/W expenses)2000
(U/W expenses)i999
(Inv. Income)2000
(Inv. Income)i999
32,000
26,000
23,000
22,500
9,000
12,000
8,000
8,000
2.00
2.50
Market price to book ratio
b.
(so:os)
31,000
30,000
21,500
21,000
10,000
7,000
6,000
8,000
(1 point)
Based on the information above, which company do you believe would be a
better choice for your client to purchase ? Give three reasons for your answer
and show all work.
CONTINUED
ON NEXT PAGE
24
92.
(1 point)
Troxel and Bouchie, Property-Liability Insurance Accounting
discuss the Surplus Aid to Surplus Ratio test.
a.
and Finance,
(0.75 point)
Using the following information, calculate the Surplus Aid to Surplus Ratio
for Star Insurance Company. Show all work.
Star Insurance Company
Policyholders’
Surplus
$900 million
Data From Reinsurance Transactions With Affiliates
Written Premium Ceded
Unearned Premium On Reinsurance Ceded
Ceding Commissions Paid
$200 million
$100 million
$10 million
Data From Reinsurance Transactions With Authorized Nonaffiliates
Written Premium Ceded
$800 million
Unearned Premium On Reinsurance Ceded
$300 million
Ceding Commissions Paid
$400 million
b.
(0.25 point)
What is an acceptable result for the Surplus Aid to Surplus ratio test?
93.
(1.5 points)
Feldblum, “NAIC Property/Casualty Insurance Company Risk-Based Capital
Requirements,” discusses the potential uses of the risk-based capital standards.
Describe three of these potential uses, and for each potential use, state whether or
not it is prohibited by the NAIC.
CONTINUED
ON NEXT PAGE
25
94.
(2.25 points)
Canadian Institute of Actuaries, “Dynamic Capital Adequacy Testing,” outlines
the standards of practice that apply to the appointed actuary of a property-casualty
insurer when preparing a report on the insurer’s financial condition.
a.
(0.5 point)
Define financial condition.
b.
(0.5 point)
Identify the two requirements
satisfactory.
c.
for an insurer’s financial condition to be
(1.25 points)
Identify five risk categories the actuary would consider threats to capital under
plausible adverse scenarios.
95.
(2 points)
Canadian Institute of Actuaries, “Educational Note: Dynamic Capital Adequacy
Testing - Life and Property and Casualty,” discusses ripple effects.
a.
(0.5 point)
Define “ripple effect.”
b. (1.5 points)
Give three examples of ripple effects and an adverse scenario that can be
associated with each one.
CONTINUED
ON NEXT PAGE
26
96.
(1 point)
According to “Compensation Plan for Property and Casualty Insurers,” there may
be times when limitations, other than the prescribed maximum of $250,000, must
be imposed so that PACICC can operate effectively. Describe two such
situations.
97.
(0.5 point)
Based on Doherty, “Sources of Financial Information of Canadian P&C
Companies,” outline the information contained in “The Brown Chart,” published
by Stone and Cox.
END OF EXAMINATION
27
Exam 7 Canada, Spring 2001
Preliminary True/False Answers
Sample solutions to essay questions will be available July 31, 2001.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
T
F
F
T
F
F
F
T
F
T
F
F
F
F
T
T
T
F
T
T
T
F
T
F
F
F
F
F
T
F
T
T
F
T
T
F
deleted
F
T
F
Revised: 06/28/01
Casualty Actuarial Society, 1100 N. Glebe Road, Suite 600, Arlington, VA 22201
Phone: (703) 276-3100, Fax: (703) 276-3108, [email protected]
Copyright © 2001 Casualty Actuarial Society. All rights reserved.

Exam 7-Canada - Department of Mathematics | Illinois State University

Transcription

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