Faculty of ActuariesInstitute of Actuaries
EXAMINATIONS
10 September 2001 (am)
Subject 403 — UK Fellowship General Insurance
Paper One
You must answer this subject only,
you may not attempt another subject in the 400 series.
Time allowed: Three hours
INSTRUCTIONS TO THE CANDIDATE
1.
You have 15 minutes at the start of the examination in which to read thequestions. You are strongly encouraged to use this time for reading onlybut notes may be made. You then have three hours to complete the paper.You must not start writing your answers in the booklet until instructed todo so by the supervisor.
Write your surname in full, the initials of your other names and yourCandidate’s Number on the front of the answer booklet.Mark allocations are shown in brackets.
Attempt all 9 questions, beginning your answer to each question on aseparate sheet.
AT THE END OF THE EXAMINATION
Hand in BOTH your answer booklet and this question paper.
2.3.4.5.
In addition to this paper you should have availableActuarial Tables and an electronic calculator.
403(1)—S2001 (9.2.01)
? Faculty of Actuaries? Institute of Actuaries
1
In respect of a UK proprietary general insurance company.(i)(ii)
Outline the ways in which the Insurer may utilise its trading losses whencalculating its tax liability.[2]Explain how investment returns are taxed.
[3]
[Total 5]
2
A general insurance company is valuing its liabilities in respect of its companyaccounts. Discuss the specific problems that arise in respect of business writtenthrough intermediaries.[7]
3
Describe the Risk Based Capital approach to determining minimum solvencyrequirements and state its advantages and disadvantages.[6]
4
Explain why a UK general insurance company should have underwriting
guidelines, and state the items that are likely to be covered in these guidelines.
[4]
5Define the term “experience rating”, and compare prospective and retrospective
methods of experience rating.[5]
6
You are the actuary for a UK general insurance company and have estimated theundiscounted claims reserve as at the previous year-end. The insurer writes,amongst others, a class of business which guarantees payment in the event of adefault in a contract between two companies. Recent poor economic conditionshave meant that the insurer has received many claims under these policies.Following the reserving exercise you have discussed your claims reserve estimatewith the claims assessors. They have suggested that, as economic conditionshave now improved, many of these claims will not be paid because the contractsare likely to be fulfilled. The assessors have therefore suggested that you shouldreduce your claims reserve estimate for this class of business.
State the information that you would need and the factors that you would takeinto account to determine whether or not the claims reserve estimate should bechanged.[6]
7
(i)(ii)(iii)
Describe the general insurance pricing cycle.[3]
Explain what features of the general insurance industry cause such cycles
to occur regularly.[8]Suggest ways in which a general insurance company may mitigate theeffect that pricing cycles have on its financial performance.[6]
[Total 17]
403(1) S2001—2
8
A major motor vehicle manufacturer provides finance, through a subsidiarycompany, to its customers who are buying new cars.
A deposit is paid, followed by a series of equal monthly payments and then onefinal payment equal to the anticipated value of the car at the end of the loanperiod. At the end of the loan period the lessee has the option of returning thecar rather than paying the final payment.
You are an actuary for a general insurance company which has been approachedby the above mentioned subsidiary company who want to effect an insurancepolicy which will pay out if the actual value of the vehicle at the end of the loanperiod is less than the anticipated value.(i)(ii)(iii)(iv)(v)
Describe the major risks to the insurer of underwriting insurance of thistype. [7]List the information required to assess such a risk.Explain how you would derive a premium for this risk.
[4][5]
State the conditions that could be applied to minimise the financial risksto the insurer.[5]Outline the reinsurance cover the insurer would ideally purchase, withreasons.[4]
[Total 25]
403(1) S2001—3
PLEASE TURN OVER
9
A UK general insurance company which was set up in 1997, has written only twoclasses of business. The experience in calendar year 2000 suggests that theunderwriting performance of the company has deteriorated. You have beenprovided with the summary information shown below (all figures in ￡’000’s).
Paid Claims
in 2000
655101,0502,000
Paid Claims
in 2000
38239521450
Paid Claims in1999 & prior
1,2352,7201,750
EarnedPremium
2,0005,5006,0005,000EarnedPremium
1,0002,1002,2002,500
Class 1
AccidentO/S claimsO/S claims
Year@ 31.12.99@ 31.12.00
1997199819992000
656801,750
133061,0502,000
Class 2
AccidentO/S claimsO/S claims
Year@ 31.12.99@31.12.00
1997199819992000(i)(ii)
2637981,390
2125197991,800
Paid Claims in1999 & prior
488798348
Discuss the claims experience of the company as a whole and by class ofbusiness, giving possible reasons for the observed features.[15]Describe the further information you would require in order to commenton the profitability of the company and of each class of business.[10]
[Total 25]
403(1) S2001—4
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