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bagheera
05-04-2007, 02:38 PM
I wish to ask a very general, open-ended question about the case study. How should one prepare for the case study from an exam point of view?! I went through it once and gained some understanding on Lifeco's ALM, derivative policies etc. But I am not really sure if I what I know and have gathered is sufficient in terms of being able to answer questions on the case study well. I would appreciate if anybody can offer tips in this regard or provide links to related discussion on the forum. Thank you!

bagheera
05-04-2007, 02:46 PM
I am sorry I ended up posting this again. The first post did not appear in IE after a refresh..

rekrap
05-04-2007, 03:53 PM
I have a very general, open-ended question regarding the case study. How do you prepare for the case study from an exam point of view?! I went through it once and roughly understood about life co's ALM policy, derivative policy etc. But beyond that I don't think I gathered much or rather I am not sure whether what I gathered is enough. I would greatly appreciate any tips anyone might want to offer or any links to related discussion on the forum. I know the question is vague, so I am prepared for vague answers!


http://www.actuarialoutpost.com/actuarial_discussion_forum/showthread.php?t=103743 (http://www.actuarialoutpost.com/actuarial_discussion_forum/showthread.php?t=103743)

...As for the case study, I am trying to be familiar as to what info is where, and make sure I know how to interpret the numbers presented (what the graphs mean, etc.) Of course, look at last year's exam (and then cross of those types of questions) to get an idea of what sorts of things they look for.

Jy88
05-07-2007, 10:25 AM
In the case study;

1) they have separate account variable annuity and variable universal life. What is the difference between separate account variable annuity and the variable annuity itself? Is it just that they have no guaranteed charge?

2) GIC - They mention about window GIC. Anyone has idea what is that?

3) For separate account GIC, 4th line, they say that Administrative fees are reduced for the commingled accounts. What are commingled accounts?

Anyone has an idea what is Synthetic GIC?

4) Other A&H - third last line, they say earned premium to surplus leverage is low about 4/1. What does that mean? 4/1?

5) On appendix D, Traditional life product - Asset mix; they say the target mix does not reflect policy loans, calls for more gov'nt bonds and less private placements. How can we see that?

Anyone has gone through the case study?

rekrap
05-07-2007, 12:03 PM
In the case study;

1) they have separate account variable annuity and variable universal life. What is the difference between separate account variable annuity and the variable annuity itself? Is it just that they have no guaranteed charge?

Separate accounts means the return is linked to the Separate account portfolio, usually externally managed money markets or mutual funds, and not the General company portfolio.

2) GIC - They mention about window GIC. Anyone has idea what is that? Payments are made over a period of time instead of in a single deposit.

3) For separate account GIC, 4th line, they say that Administrative fees are reduced for the commingled accounts. What are commingled accounts?

Exactly what it sounds like. Fees are reduced because all the accounts are being handled together, like one (commingled) account.

Anyone has an idea what is Synthetic GIC?

In Synthetic GICs, the investor retains control of the assets. The insurer, or issuer, merely provides a “wrap” to guarantee the participant withdrawals at book value, again with principal and stated interest rate guaranteed.

4) Other A&H - third last line, they say earned premium to surplus leverage is low about 4/1. What does that mean? 4/1?
You need to be getting a lot more premium for the surplus supporting it.

5) On appendix D, Traditional life product - Asset mix; they say the target mix does not reflect policy loans, calls for more gov'nt bonds and less private placements. How can we see that?

Switching from PP to Treasuries reduces credit/default risk and increases liquidity, among other things. These are general concepts you should know after months of studying for this exam...

Anyone has gone through the case study?
Not really.

bagheera
05-07-2007, 12:19 PM
You can ask the mods to delete... In your first post, type "Mods please delete"

Although, we already had a thread for the case study, so you could ask them to delete both of yours now... :tup:

Done. Thanks. Let this thread remain since I see new posts.

Jy88
05-08-2007, 02:52 AM
Rekrap,

Thanks a lot for those clarification. However, on the asset mix section, I am just wondering how do we know what is the target mix for LifeCo on the different lines of product. Is it by looking at the financial statements? And which component refers to private placement?

Thanks again for that.

rekrap
05-08-2007, 09:11 AM
Rekrap,

Thanks a lot for those clarification. However, on the asset mix section, I am just wondering how do we know what is the target mix for LifeCo on the different lines of product. Is it by looking at the financial statements? And which component refers to private placement?

Thanks again for that.

You don't know the target mix explicitly, and it doesn't matter. You know the actual mix from the Asset breakdown, and you know from the asset mix discussion that it is not an "appropriate" mix. Private placements are the private corporate bonds (A1d and A1e on the financial breakdown).

Knowing that the gov't bonds have a duration of 13.9 and that the privates are 12 or 5 depending upon quality, it should be clear, in order to lengthen duration to match liabilities, one reallocation would be to sell some privates to buy more gov't bonds.

Jy88
05-08-2007, 09:25 AM
Thanks Rekrap.

Jy88
05-08-2007, 10:09 AM
For non-traditional life products, what is the margin squeeze?

And how would interest rate changes impact the margin squeeze?

Jy88
05-08-2007, 10:21 AM
1) For variable annuity, how does it work actually? As compared to equity index annuity?

Say for equity index annuity, is it that policyholder pay a single premium and part of the premium is invested in the equity index. The other part is accumulated at fixed guaranteed rate. So the insurer only guarantees the min. low fixed rate. How does the payout occurs?

I am very confused.

2) In 2003 exam 2(b), a low equity market return will increase the value of GMDB payoffs to policyholder . And options will be in money so more likely to surrender? Why?

My understanding is that:
I thought for the variable annuity, policyholder will pay a single premium and that would be invested in equity funds. Insurer guaranteed a min death benefit. If any claims occur, then the funds in the equity (if lower, insurer will top up to the min. guranteed amount) and payout to the insured. How would that then give a increase in GMDB payoff?


3) And for (e) on payout annuity, it says that low equity returns may impact profitability given largely fixed crediting rates. Is this part of payout annuity product feature? Is not mention in the case study?

Thanks a lot.

rekrap
05-08-2007, 10:33 AM
For non-traditional life products, what is the margin squeeze?

And how would interest rate changes impact the margin squeeze?

You have a guaranteed crediting rate, and if your actual earned rate (less a spread/margin) is below the guaranteed crediting rate, which you have to credit, you are implicitly "squeezing" your margin/spread (or if the earned rate is low enough, giving the spread completely up or more) in order to meet that guarantee.

rekrap
05-08-2007, 10:34 AM
I am very confused.
...
Thanks a lot.

Uncle... I can't answer all your questions and get my own studying. FYI, don't sweat the small stuff at this point!

rekrap
05-08-2007, 08:16 PM
it subject to high lapse rate when interest increase, why? is it because the credited portfolio average rate will lag the market rate (smaller than market rate), so investor want to lapse? Thanks.

Non-trad life policyholders want the company to do non-traditional things, so when the market rates go up, and the company goes up with it, the policyholders are pissed and take their money elsewhere...

:popcorn:

rekrap
05-09-2007, 10:29 AM
sorry, communication issue, so my understanding is correct? :toast: Thanks.

Yes.

bagheera
05-09-2007, 01:27 PM
A few more questions (some of them are of the "yes/no" type):
1. Does the cash flow analysis graph plot A_t minus L_t vs. t where A_t=assets at time t and L_t=liabilities at time t? If yes, why is the graph below the x-axis for institutional pension payout? Note that this line of business is well-immunized. So assets should be greater than liabilities.

2. For scenario testing for accumulation annuities they talk of increase followed by a decrease in interest rates. What maturity interest rates are they talking about? Do the changes mentioned follow an ascending order of maturity? For example, for accumulation annuities does an "increase followed by decrease" mean increase in short term rates followed by decrease in long term ones?
If yes, for group benefits why should a slow decrease in interest rates cause a decline in economic surplus? If you look at the partial duration sensitivity graph for group benefits, a decrease in rates should improve the net (assets-liabilities) position.

bagheera
05-09-2007, 02:10 PM
Is dollar duration the change in dollar value for 1% change in rates?

campbell
05-09-2007, 03:33 PM
Is dollar duration the change in dollar value for 1% change in rates?

Yes.

bagheera
05-09-2007, 04:14 PM
Yes.

Thanks..But I see an inconsistency. It might affect answers to questions on the case study involving dollar durations if they appear. Page 4 Appendix D gives dollar duration of surplus as 2211000, effective duration as 9.5, and value as 243020. For a 1% change in rates, the effective duration indicates a surplus change of ~24302 but dollar duration of surplus is much larger..