7. (7 points) Describe accounting considerations and standards used in the preparation of
income-based financial statements addressing reinsurance ceded transactions by life
insurance companies in:
(i) The United States;
(ii) Canada; and
(iii) Australia.
8. (6 points)
(a) Describe Yearly Renewable Term (YRT) reinsurance on a first dollar basis.
(b) Describe how YRT reinsurance and experience refunds can help a ceding
company manage its earnings.
(c) You are given the following:
Policy Year
1 2 3
Reinsurance premium 100 100 100
Gross death benefit 250 375 325
Reinsurance percentage 25% 25% 25%
•The reinsurance profit and expense margin is 12%.
•The loss carryforward (LCF) interest rate is 6.25%.
•The reinsurer returns 40% of all profits through the experience refund
process.
•Assume there are no reserves or taxes.
•All transactions occur at the end of the year.
Calculate the experience refund for each year.
Show all work.
**END OF EXAMINATION**
COURSE 8I: FALL 2002 - 9 - GO ON TO NEXT PAGE
Individual Insurance
Afternoon Session
Question 9 pertains to the case study.
9. (5 points) As Marketing Actuary for Saturn Life, you have been asked to evaluate a
proposal from yourlife.com to be included on their Internet site. The site is designed to
help visitors find the lowest cost annually renewable term (ART) life insurance.
You are given the following information on the site design and cost structure:
•After a visitor has entered personal information, the site provides a list of the five
lowest cost insurance companies, their ART rates, and links to the insurance
companies’ web sites.
•Visitors can also search for insurance companies by name, obtain rates, and find
links to their web sites.
•For a monthly fee, yourlife.com will include Saturn Life in its rate comparison
database and provide a link to Saturn Life’s web site.
•There is an additional charge to Saturn Life every time yourlife.com provides a
top five list that includes Saturn Life.
•There is an additional charge every time a visitor uses a link from yourlife.com to
Saturn Life’s web site.
•Saturn Life would have the opportunity to purchase ads at yourlife.com.
Evaluate the channel design and channel management considerations that need to be
taken into account in entering this relationship with yourlife.com.
Question 10 pertains to the Case Study
10-12. Use the following information for questions 10 - 12.
Mercury Life enters an agreement to acquire Saturn Life.
10. (8 points)
(a) (6 points) Compare the field management compensation of a typical agencybuilding
channel with that of a typical non-agency building brokerage channel
and evaluate any differences.
(b) (2 points) Recommend the channel that will best position the combined company
to achieve strong sales and profitability. Justify your response.
COURSE 8I: Fall 2002 - 10 - GO ON TO NEXT PAGE
Individual Insurance
Afternoon Session
Question 11 pertains to the Case Study
10-12. Use the following information for questions 10 - 12.
Mercury Life enters an agreement to acquire Saturn Life.
11. (5 points) Explain issues that will need to be resolved in analyzing emerging mortality
experience for the combined company’s term and universal life products.
Question 12 pertains to the case study.
10-12. Use the following information for questions 10 - 12.
Mercury Life enters an agreement to acquire Saturn Life.
12. (6 points) Mercury uses cashflow analysis techniques for internal management purposes
and intends to approximate the liability cashflows for the Saturn block of fixed deferred
annuities using the following formula:
Mercury cashflows
Saturn block account value
Mercury block account value
´
For Saturn’s fixed deferred annuity products you are given:
•There are no market value adjustments on surrenders or partial withdrawals;
•All products contain a surrender charge based on a percentage of account value
that decreases from 10% in the first year to 0% in year 15;
•Saturn credits portfolio-based interest on the block with a bailout provision that
permits surrender for the full account value if the credited rate falls below 5%;
and
•All of Saturn’s deferred annuities offer a two-tiered crediting design.
Explain considerations in projecting liability cashflows and evaluate the appropriateness
of Mercury’s intended approximation for the Saturn block with respect to:
(i) Market rate;
(ii) Credited rate strategy;
(iii) Lapse rate function, and;
(iv) Expense inflation.
COURSE 8I: Fall 2002 - 11 - GO ON TO NEXT PAGE
Individual Insurance
Afternoon Session
Question 13 pertains to the case study.

[1] [2] [3] [4] [5]