Part 7

[Loki]

What did you all think? I thought the format was different from prior years. Lots of multiple choice and lots of low value short answer questions.

Overall, I thought it was kind of difficult. I have no idea how I did and I am anxious to get my exam back.

[Lsheker]

Look at it this way. I felt well-prepared and pretty confident going in. Afterwards, I felt like jumping out of a window. Very long, very hard. I didn't think the questions were unfair or bad in any way, just mentally very difficult and time-consuming. I know I did very well on the MC, so I'm hoping everyone thought it was too long so I still may have a shot to pass.

[jared]

I thought it was long also. There were many hard points, but there were many easy points also, so the pass score will not be ridiculously low. There were a few "case studies" which take some time to digest.

[cas_student]

Add me to the list of those who don't know how well it went. There seemed to be some very open ended question that could have several answers. Long and difficult is right.

[beh5716]

The test was strange. They asked questions that didn't seem to come anywhere from the syllabus. I personally spent a large portion of my time trying to figure out what they wanted to hear. In hindsight, I should haev moved quicker - answering their generic questions with the first thing that came to my mind. I never thought I'd say it, but please CAS, please, bring back according to!! At least then I will have some idea of what you are looking for!!!

[beh5716]

I guess they are trying to reward people who have experience in the field and can go in and answer some realtively simple questions with logical answers. I guess I don't have a problem with that, but then again I spen 475 hours studying the material on the syllabus. Tell me. Please tell me. Where in the world did they come up with some of those questions? You all know what I am talking about! It is too early to be specific, but you all know what I am talking about!!! I could write for days and not know if I hit what they were looking for, and that is what is a shame.

[beh5716]

By the way I am now intoxicated, and that is why I am rambling. How embarissing....

[looploop]

Well the CAS has done it again. I now have spent over 600+ hrs on this exam, I got a 5 last year. I thought I deserved the 5 last year, given I mucked up the long accounting problems. So this time around, I spent great amount of time going over every single sylabus reading and making sure to do all of the past exam problems.

But guess what? That is NOT enough. Many of the questions were open ended and I had to question myself repeatedly about what the question was asking? Also I think the calculation questions were overly complex, like that 5 pt tax one. For most of the essay questions, I just wrote one or two sentences.

The style of the exam was completely different from past exams. The 28 multiple questions threw me off a little. I think this is the wrong move to give more weight to MC. My approach to studying for this was way off.

Well looks like my letters will have to wait till next year.

[Loki]

As I said before, this was a strange one. Like most of you, I felt so confident going in. I actually said to my husband that I was really prepared. I agree that it was really hard to understand what they were asking for on many questions. A couple I just skipped and when I went back, I said "ah hah!". Of course, there were many questions where I didn't have an "ah hah" moment.

The only good thing is that everyone seems to feel the same way. I am sorry you all studied so hard and find yourselves wondering still ... but at least misery loves company and at least no one has posted saying that they thought it was a breeze! We are all on a level playing field with this one.

Just when you think you've got the CAS figured out, they throw you a curve ball. Go figure.

[jared]

I agree that without the "according to..." the CAS would have to accept many answers. For example, they wanted you to give an argument for and against a statement. Any reasonable argument should be accepted, whether or not it was mentioned.

[Mapie22]

I have a little complaint about the "According to", or lack thereof.

My understanding (and correct me if I'm wrong), is that the CAS has moved away from questions with "According to " so as to take the focus off of memorization.

But, when the questions are pretty much a direct quote out of a paper, then I don't think there is any real difference between asking the question with or without the "According to". What's worse is that I believe questions like that actually stress memorization even more, because now you must remember what paper the quote came from, as well as the answer given in the paper. At least if the CAS did include the "According to", it would give you a context for the quote, as you would then know immediately what paper it came from, and you would waste less time trying to remember that bit of information.

I can give you an example. One of the questions, if I am remembering correctly, was "Some would argue that insurance's limited exemption from federal antitrust law facilitates collusion to increase price. List three counter arguments." This is pretty much a direct quote out of Harrington. As a matter of fact, I had a flashcard that had that exact question on it. Because it was practically a direct quote from Harrington, there is little doubt that the answer the CAS is looking for is Harrington's three counter arguments. And if that is what they are looking for, then they should have just added, "According to Harrington".

I do think the move away from "According to" questions is a good move. But, the CAS needs to keep in mind why this move has been made, to decrease the focus on memorization, and design questions that do that. The question I referenced above does not move away from memorization. Worse, it focuses even more on memorization, by requiring the test taker to also remember exactly what paper it came from.

[Dooby Scoo]

That 5.25 point question was rediculous.

With that many questions on the exam and that little time to complete them, there is no time to think. And if that's what they want you to do, then they need to give you more time. Absolutely ridiculous.

A total bullsh1t test.

[jared]

"Some would argue that insurance's limited exemption from federal antitrust law facilitates collusion to increase price. List three counter arguments." This is pretty much a direct quote out of Harrington.

Well put. I think the CAS would have to accept other answers, but memorizing the list from Harrington was the way to go.

[Tri4Ben]

I was pretty confident going in. I went throught the syllibus and memorized every list and red all the papers twice, as well as read the All 10 and the CSM and did all the problems.

I wasted the last 3 months of my life and I thought I would at least have a couple of letters after my name to show for it, but, alas, all I have is 10 extra pounds of fat on my belly from not exercising in 3 months.

If only I had about another half hour, I might have got enough, but the fact that I spent way to long trying to figure out a 5.25 point tax question which I will get about .25 on it was my downfall.

Now I have to wait 2 months......

[frummie]

It was long. 71 questions. Wow. And 28 MC. I didn’t think there would be that many. Like someone above said, I studied for a shorter exam with more calculations. Instead, lots of MC, lots of nitpicky stuff, not many calculations heavy large-point calculation questions.

I went through each question once, skipping the ones that took more than about 20 seconds for me to figure out. I was able to go through a second time and time ran out at question 66. I then noticed I left 67-70 blank! :swear: I hope they weren’t worth a lot.

I also stupidly left 4 multiple choices blank.
Worst case scenario, 0/4, -1 point.
Second-to-worst case scenario, leave all blank, 0 points.
Third-to-worst case scenario, ¼, +.25 points.
...
Best case, all correct +4 points. Might as well have filled them in with anything. :swear:

For RBC, I practiced all the percentages, worked on the affiliate stuff. Exam: No calculations I could remember. They asked some other RBC stuff I didn’t focus on. :swear:

I agree on the 5.25 point question. I came in very confident, walked out having no idea because I just kept writing and hope it was what they were looking for. I'm glad others feel that way. I think you all summarized the exam and my feelings toward it well. If we all felt that way, the curve may be lower and we have a chance.

Good luck all!

[Redhead]

Glad to see everyone feels the same way I do.
43 essay questions!!! WTF?! How many last year, 35, 38? It's amazing how they think we can do MORE essay problems with the same amount of time...just amazing. And I agree these types of questions, w/out 'according to', leave interpretation of correct answers wide open...
maybe that means we have a better chance. LOL!

[Basso]

I think its safe to talk about it now: the one I liked the best was the WTC terrorism coverage question. In a way, I feel sorry for the graders. If something is reasonable, shouldn't they accept credit for it?

I saw the tax problem and knew it would be a time-hog. I skipped it. With 10 min to go, I figured there was no point in starting a 20 min problem. I'm glad I did it that way.

Overall I'm pretty sure I failed. I guess I'll find out in late June or early July. Best of luck to all of you.

[beh5716]

I don't feel sorry for the graders. F them.

[RLopez#24]

This exam was SO easy. I'd be surprised if I got less than 90/100.

J/K!

I agree with y'all regarding exam difficulty. This was quite a difficult exam. I am glad that I ain't the only one who thought so. Gives me at least some shot of passing. Of course, that may be wishful thinking.

[lori darling]

there was an MC question about canadian unearned premium margin. did i miss something? i thought that was based on the loss ratio (>80%, margin up to 15%). i didn't see anything about losses on my exam, only premiums??

very long exam, too many questions that took a lot of time to digest before you could even attempt an answer. i thought the MC section was kinda hard too.

ah well.

[Lara Croft]

there was an MC question about canadian unearned premium margin. did i miss something? i thought that was based on the loss ratio (>80%, margin up to 15%). i didn't see anything about losses on my exam, only premiums??

From the OSFI "Minimum Capital Test" reading -- The UEP margin (8%) is applied to the greater of net UEP's or 50% of net WP in the last 12 months. I seem to remember that the problem gave both UEP and WP.

I agree with everyone on the length and difficulty of the exam. I was running out of time at the end and that's where all the higher-point questions were. You'd think I'd have learned by now after that 2002 exam with the 5 point question at the very end. :shake:

And, by the way, I hate triple T/F :swear:

[Argh!]

there was an MC question about canadian unearned premium margin. did i miss something? i thought that was based on the loss ratio (>80%, margin up to 15%). i didn't see anything about losses on my exam, only premiums??

From the OSFI "Minimum Capital Test" reading -- The UEP margin (8%) is applied to the greater of net UEP's or 50% of net WP in the last 12 months. I seem to remember that the problem gave both UEP and WP.

I agree with everyone on the length and difficulty of the exam. I was running out of time at the end and that's where all the higher-point questions were. You'd think I'd have learned by now after that 2002 exam with the 5 point question at the very end. :shake:

And, by the way, I hate triple T/F :swear:

Greater of... D*mn! I took the min. Was one of those times where I just couldn't remember if it was the min or max and couldn't think straight trying to get through them as quickly as I could. And, of course, both answers were there! Anyone come up with a key to the M/C yet?

What happened to plain old T/F questions? Those are much better than the M/C. :swear:

[Redhead]

... What's worse is that I believe questions like that actually stress memorization even more, because now you must remember what paper the quote came from, as well as the answer given in the paper. ...

I can give you an example. One of the questions, if I am remembering correctly, was "Some would argue that insurance's limited exemption from federal antitrust law facilitates collusion to increase price. List three counter arguments." This is pretty much a direct quote out of Harrington. As a matter of fact, I had a flashcard that had that exact question on it. Because it was practically a direct quote from Harrington, there is little doubt that the answer the CAS is looking for is Harrington's three counter arguments. And if that is what they are looking for, then they should have just added, "According to Harrington". ...


I think its safe to talk about it now: the one I liked the best was the WTC terrorism coverage question. In a way, I feel sorry for the graders. If something is reasonable, shouldn't they accept credit for it?

Both good points...if they are looking for a specific answer, they should say 'according to'...otherwise, they should have to accept anything that's reasonable. I had no idea where that question came from (c'mon, I'm gonna remember every single point of every one of those gazillion articles?!), so I answered it from the basis of what I generally remembered reading about anti-trust laws and price increases, who the heck knows if it actually was Harrington, it may have been, but that wasn't my thought process. So, while it may be nice to get away from 'according to' and supposed less memorization, DogBoy has a terrific point that anything reasonable ought to be accepted.

FYI - I would encourage anyone who thinks this way to write in about the question(s) if later on they feel they weren't graded accordingly even tho' their answers were just as reasonable.

[MountainHawk]

If they do the same thing they did to me on 9, don't count on this being the way they grade it.

On last years 9, they had a question about picking which experience rating plan worked better. Well, there were two papers on teh exam that discussed this, one from the NCCI, and one from another author I don't recall right now. I chose the NCCI method, and solved it correctly based on that method.

I got 25-50% of the points. 1.25-2.5 out of 5.

I wrote in to appeal (since I got a five), and the letter came back that they feel it was scored appropriately.


Moral of the story is: Just because they don't say 'according to:' doesn't mean they don't want the answer 'according to:'.

[Argh!]

Let's talk specifics...

What about problem 57 that asks which reinsurer has the stronger balance sheet - ABC or XYZ? Those I surveyed seem to be mixed, though I answered company XYZ.

[gonnagetit]

My two cents on the multiple choice:

1) Skipped because "due" care threw me off. Would have easily chosen "E" if it had said "reasonable" care. Might have been just a bit too paranoid.
2) D
3) C
4) A
5) D
6) B
7) C
8) C
9) A
10) D
11) A
12) B
13) D
14) D
15) C
16) A
17) B
18) C
19) E
20) B
21) B
22) A
23) B
24) C
25) D
26) A
27) Skipped. Any idea where this was mentioned?
28) B

[beh5716]

I sure as H#LL hope you were just a bit too paranoid. If I got question #1 wrong then I mine as well have thrown my paper in the trash, urinated on it, spit on it, broke my pencil in two in front of the procters face and screamed "FREEEEDOM!!!!" at the top of my lungs.

[gonnagetit]

#57 - I went with reinsurer XYZ too. More investible assets, fewer liabilities, and more surplus. The comment above about the grading of Part 9 makes me sick. Maybe the point of these open-ended questions is to give the graders a way to give no one full credit.

#58 - The writer of this one receives honorary mention for the worst exam question ever. Either a new CAS member eager to burn the bridge behind them, or someone twisted enough to be an actuary/tax accountant. I'm not convinced that the material is covered on the syllabus. Where is "the deduction for incurred loss as calculated by the IRS" mentioned in Almagro or IASA 12? I would appreciate any feedback on this because I'm considering challenging the question.

[Colymbosathon ecplecticos]

Well, I didn't take this exam, but it's pretty clear that the deduction for incurred losses as calculated by the IRS is the incurred loss discounted the way that the IRS mandates, e.g. their pattern and their rate. Doesn't look defective to me.

[Argh!]

I don't see how they can't give credit for reasonable answers.

I agree. #58 was ridiculous. No idea what part b was supposed to be doing... took me forever just to understand what the heck they were getting at.

[Extra]

I'll offer up some numerical responses for consideration:

#63: overdue % = 35.7% (2.5/7)
Slow payer (25% = 2.5/10)
Provision for rein = $2.4M. 20% of max(unsecured + dispute,
overdue). Unsecured = $0 + Dispute = $12, overdue = $2.5
#64: $4,750
#65: IG on IT funds = 143.6; IG on CS funds = 42
#66: 2-yr Reserve Development = 89; Reserving risk charge = .214
#68: PDR = $150,000
#69: Unrealized CG net of taxes = $65 ????

[greg]

the guy who has posted 315 times (hint!) says:

Well, I didn't take this exam, but it's pretty clear that the deduction for incurred losses as calculated by the IRS is the incurred loss discounted the way that the IRS mandates, e.g. their pattern and their rate. Doesn't look defective to me.



umm, if you didn't take the exam, what makes you so sure that sufficient information was given? if you didn't take this exam, why are you expressing any opinion on it at all? someone of your vast intelligence must have so many other worthwhile things to do.

[Colymbosathon ecplecticos]

Yeah, you're right. Sometimes people ask questions that I can help with, but I really don't have time for that today. Bye.

[gonnagetit]

Colymbosathon ecplecticos

Colymbosathon - did you write this question?

In case you didn't, part (a) of the question dealt with the reserve discounting adjustment:

a) <For each of three scenarios> Calculate the effect on 2003 regular taxable income, showing the separate effects on statutory income and the reserve discounting adjustment.
b) <For each of three scenarios> Calculate the effect on 2003 regular taxable income, showing the deduction for incurred loss as calculated by the IRS.
c) <For the second scenario> Explain how to reconcile your answers in parts (a) and (b).

[beh5716]

Let's take it easy on "Colymbosathon ecplecticos". I am sure he/she is not really as arrogant and naive as that post implied....

[Argh!]

I'll offer up some numerical responses for consideration:

#63: overdue % = 35.7% (2.5/7)
Slow payer (25% = 2.5/10)
Provision for rein = $2.4M. 20% of max(unsecured + dispute,
overdue). Unsecured = $0 + Dispute = $12, overdue = $2.5
#64: $4,750
#65: IG on IT funds = 143.6; IG on CS funds = 42
#66: 2-yr Reserve Development = 89; Reserving risk charge = .214
#68: PDR = $150,000
#69: Unrealized CG net of taxes = $65 ????

On #68, don't you have to net that against DPAC to get $100,000 PDR?

[beh5716]

#68: PDR = $150,000

I do not have my exam in front of me, but I remember the DAC being $50,000. I agree the premium is "deficient" 100K, but I thought that the DAC should be reduced in its entirety leaving a "Premium Deficiency Reserve" of only 100K. Perhaps they will accept both? More likely - I am wrong....

[beh5716]

I agree with "Argh!!!" despite my poorly written post...

[Argh!]

I'll offer up some numerical responses for consideration:

#63: overdue % = 35.7% (2.5/7)
Slow payer (25% = 2.5/10)
Provision for rein = $2.4M. 20% of max(unsecured + dispute,
overdue). Unsecured = $0 + Dispute = $12, overdue = $2.5
#64: $4,750
#65: IG on IT funds = 143.6; IG on CS funds = 42
#66: 2-yr Reserve Development = 89; Reserving risk charge = .214
#68: PDR = $150,000
#69: Unrealized CG net of taxes = $65 ????

Extra, how did you get the risk charge of .214 on #66? I have something different but didn't save any work, just my answer on that one.

[Extra]

Yes, but I thought it was included in the original comparison to UEPR:

UEPR 1,000,000

Losses = 800,000
Pol Maint = 100,000
LAE = 250,000
DPAC = 50,000

Sum = 1,200,000

Deficiency 200,000

PDR after taking down DPAC 150,000

[beh5716]

Yep, your right Extra. That's too bad for me...

[Basso]

On #68, don't you have to net that against DPAC to get $100,000 PDR?

I'm not sure which is right, but I got 150 k deficient, subtracted the 50k and got 100 just like Argh. I didn't think the DPAC got added into the comparison, since it is a prepaid expense rather than a "real" asset.

At this point, I am done. I'll see many of you again next year for this exam.

Here's a sure bet. In late June/early July, you will NOT see #355 on any pass list. :(

[Extra]

Since it is a Canadian insurer, I believe the DPAC is not expensed, but held as an asset.

[Colymbosathon ecplecticos]

Greg pointed out that I should be doing other stuff, but ....

You have a premium deficiency when the UEPR is not enough to pay for the run-off of the business (there are some discounting details I am skipping over).

Based on what's posted above the UEPR is $150,000 short of what is needed to run-off the business. That is how much you need to post after you have taken the DAC asset down.

[Mapie22]

gonnagetit:

#27 was from the Committee on Property and Liability Financial Reporting, American Academy of Actuaries, "Property and Casualty Practice Note, Statements of Actuarial Opinion on P&C Loss Reserves as of December 31, 2002."

And if your answers are all correct, I'm looking at this exam next spring. :shake:

[Extra]

Here goes for #66:

1) Industry Development = 0.065
2) Company Development: (sum 2003 column - sum diagonal)/sum diagonal = 0.114
3) #2 / #1 = 1.754
4) Industry RBC charge (worst-case year) = 0.210
5) #3 * #4 = 0.368
6) Avg of #4 and #5 = 0.289
7) Interest Discount factor = 0.942
8) [(1+#6) * #7 ] -1 = 0.214

This is the procedure I practiced from one of Feldblum's seminar handouts. Anybody else?

[Mapie22]

Extra, I did it differently.

1) Industry Development = 1.065
2) Company Development: (sum 2003 column - sum diagonal)/sum diagonal = 1.114
3) #2 / #1 = 1.046
4) Industry RBC charge (worst-case year) = 0.210
5) #3 * #4 = 0.21966
6) Avg of #4 and #5 = 0.2148
7) Interest Discount factor = 0.942
8) [(1+#6) * #7 ] -1 = 0.144

In the text of the Feldblum paper, he doesn't subtract 1 from the industry and company development before dividing the company by industry.

[Colymbosathon ecplecticos]

Think about what would happen if the industry development were 1.000.

[cas_student]

I did it using Mapie's method as well.

[gonnagetit]

I got 13.8% for #66:

Sum of 2003 column excluding prior row = 7764
Sum of diagonal = 7435
7764 / 7435 = 1.044
1.044 / 1.065 = 0.98
50% * (21%) + 50% * (0.98 * 21%) = 20.8%
(1.208 * 0.942) - 1 = 13.8%

[Extra]

You're right, Mapie. Looks like I confused it with the WP procedure, which uses loss ratios. I'm not sure about the inclusion/exclusion of the prior row, so that could affect it, too.

[purple nurple]

what about #63? i don't remember my exact answer on that one, but i'm pretty sure that i decided they weren't slow

[Mapie22]

gonnagetit, you don't include the most recent accident year.

[gonnagetit]

Mapie, you're right. It looks like the answer is still 13.8%. Good thing for partial credit.

Purple, I didn't write down my answers on #63 either, but I remember getting that they were slow. Looking at it now:
Paid receivables >90 days over = 2.5
Total paid receivables (2.5 + 4.5) = 7
Received in the last 90 days = 3
2.5 / 10 = 25%

[Mapie22]

gonnagetit, that looks familiar. I think I got the exact same thing on #63.

[Mapie22]

Partial credit is my best friend.

[beh5716]

Ok: Which line has been identified as having significant exposure to Terrorism:

Fidelity
Workers Comp
Financial Guaranty

I put only WC. What paper is this on?????

[Mapie22]

beh5716,
#27 was from the Committee on Property and Liability Financial Reporting, American Academy of Actuaries, "Property and Casualty Practice Note, Statements of Actuarial Opinion on P&C Loss Reserves as of December 31, 2002."

[beh5716]

Thanks, but what is the answer?!?!?!

[Mapie22]

Financial guaranty and workers comp. I got that one wrong though.

[beh5716]

what a joke...

[jared]

P. 69 of the Addendum has Workers Comp.
P. 70 has Financial Guaranty ("Coverage to guarantee the financial strength of entities that may be impacted by the attacks")
I don't see Fidelity.

[Colymbosathon ecplecticos]

As usual, it all makes sense. Would terrorism cause an increase in embezzlement?

[lori darling]

great question! from the addendum, of course, which i didn't read. probably the only thing from the practice note i should have read. bummer. :roll:

[Truth Soldier]

That question tests "real world experience."

[gonnagetit]

As usual, it all makes sense, Colymbosathon IS as egotistical and annoying as his/her emails imply. So, Coly, do you provide snide commentary for all exams, or are you just interested in this particular exam that you didn't take? Have you ever seen the commercial with Brett Favre in it? Something about Monday morning quarterbacking ...

[lori darling]

depends on which "real world" but yes, agreed, unless you read the stupid thing...and retained it...

[cas_student]

So do we all agree with gonnagetit's multiple choice answers??

[frummie]

If so, death cometh to me....

The CAS will come out with official answers next week. I can wait until then. No sense wasting time.

[glitto]

Here were my MC answers, which have 17 that agree with gonnagetit:

EDCDA ECCED BBEDC ABCE- BCB-- ABB

My answers are different for #s 4-6, 9, 11, 13, and 21. I skipped #s 20, 24, and 25 (I too thought the margin for Canadian UEPR depended on LR). And I (attempted to) answer #27: I knew WC was and Fidelity wasn't, and couldn't remember about Financial Guarantee, but I believe I assumed not based on WTC losses.

I didn't have my test sent back to me, so I can't check the seven questions with differences. I know which answers I'd prefer. :D

[gonnagetit]

It looks like Glitto's right about #11 = B.

Time for a beer.

[Loki]

Colymbosathon ecplecticos ...

Financial Guaranty doesn't cover embezzlement. It is basically credit risk coverage.

[Truth Soldier]

He was referring to Fidelity.

[Argh!]

How long does it usually take before the answers are posted? And where do they get posted - do you have to just keep looking in the old exam section or do they make an announcement on the first page?

[Ebenezer Kohl]

EDCBA
ECEAD
BBDDC
ABCEC
BEB--
A-B

[Argh!]

EDCBA
ECEAD
BBDDC
ABCEC
BEB--
A-B

For #19, shouldn't #2 be the lower of depreciated cost plus improvements less related encumbrances?

[frummie]

Question 5:

Page 29: The table shows that 52% of net compensation goes to the plaintiff in Auto cases. Answer A says over 70% goes to the plaintiff compensation.

Bottom of page 18, top of page 19 of Hensler says, “But plaintiffs do not always win. Has the probability of their doing so changed over time? In the two jurisdictions we studied, the answer is clearly ‘yes’.” Answer D says: There is an overall increased probability that plaintiffs will win their lawsuits. Seems like D is correct.

I put A. :cry: Yup, time for a beer.

Also,
Regarding #6, from page 111: Together, the NAIC employees in these locations assist state insurance regulatory officials in many ways, including the following:… “Valuing insurers’ securities” is on the list, which is answer 2, so 2 is correct.

Regarding answer 3, Model legislation isn’t on the list explicitly, but page 118 says, Model legislation developed by the NAIC is helpful in guiding states in adopting the same or similar insurance laws, regulations and guidelines. Is this helping state regulators or state legislators? Page 113 says: The effect of the NAIC on insurance regulation can be examined by looking at three NAIC activities: model laws, accreditation, and research...The services provided by the NAIC are essential to the operation of efficient and effective state insurance regulation. I’m hoping "developing model laws" also helps regulators and answer 3 is correct, and that E is the correct choice. But now I'm not sure!

[jared]

FYI - this was the question

6) Which of the following activities are performed by the NAIC to assist state insurance regulators

1. Establishing rates for the Natl Flood Insurance program
2. Monitoring the quality of insurance company investments
3. Developing proposed model legislation

a) 2 only
b) 3 only
c) 1 and 2 only
d) 1 and 3 only
e) 2 and 3 only

1 is false because Hamilton Ferguson says the rates are done by FEMA.

[lori darling]

i know #3 is definitely a function, having been a part of the process a few times. #2 is done via the SVO through the NAIC.

i'd bet money on the answer being E.

[jared]

8. Under which of the following methods of rate regulation can a state require withdrawal of a commercial auto rate

1. Use and File
2. File and Use
3. No File


Though some of us said C. 1 and 2 only, we are wrong and Ebenezer Kohl is correct.

Brady p. 76 paragraph 4 clearly states that a regulator can always withdraw a rate. Answer E. 1, 2, 3

[cas_student]

Improvements are part of the depreciated cost...according the way I interpret IASA (asset chapter). Unfortunately, Argh!, I made the same mistake you did.

Does anyone else think 20 should be "A"? I didn't think the annual statment showed information for subsidiaries anywhere but on the balance sheet.

[jared]

Another one I got wrong, along with the posters.

9. The combination of cartel ratemaking and state regulation of rating classes and territories is likely to result in which of the following

1. An inefficent distribution method
2. Supply shortages
3. Capacity shortages


Joskow p. 423 - the answer is C. 1 and 2 only.

[Loki]

I think information about subsidiaries is also shown in schedule F and schedule D. Schedule F only in cases were there is intercompany reinsurance.

[cas_student]

You're right. The answer is Schedule D. Ugh....it looks like I got killed....AGAIN on the triple true/false! My strategy was to skip the multiple choice until I finished the essays, but I realized how many points it was worth and decided against it. I absolutely H-A-T-E multiple choice.

[Jobu]

Regarding question 21 - I must be missing something. So far everyone who has posted multiple choice answers has listed B, but my colleagues and I all got D.

Assuming that R3 has already placed half of the credit risk in R4 (which doesn't really affect the outcome), I get RBC charges of 2900 for X and 1689 for Y. Thus, assuming an ACL factor of 0.5, the ACL charges are 1450 for X and 844.5 for Y. My ratios of Adj. Surplus to ACL charges are then 3.448 for X, 3.316 for Y, and 3.000 for Z. In order of increasing ratio I get Z, Y, X - answer D.

What am I missing?

[jopa]

What did you all put down for the one where the you could not classify policyholders (age, etc.) and you still had to be competitive and profitable? I think they asked for two proposals.

[lori darling]

jopa - not sure which one you're talking about. maybe i didn't get to it.

jobu - i concur. i got answer D also.

[cas_student]

For the non-classification problem I said that you could charge varying deductibles. The lower risks would prefer the lower deductibles and the higher risks would prefer the higher deductibles according to their indifference curves. The risks would basically classify themselves.

I didn't write anything for a second method but I assume you could also charge the weighted average rate.

BTW...your answer for 21 is correct.

[glitto]

Argh. It's frustrating seeing how many little nitpicks they threw into the multiple choice as everybody goes over them.

Anyway, for the non-classification question, my first proposal was that you could rely more heavily on experience rating, as tends to happen in restricted classification situations, relying on the experience rating to proxy for the effects of the forbidden factors.

My second proposal was that a company with affiliates could use underwriting guidelines to differentiate between insureds, and then use the affiliates to write different insureds at varying rates.

[mathseal]

cas_student: I agree with self-selection, and the other option was probably use of affiliates.

Two notes for the self-selection:
1) it only works if the customers know their risk (Certainly people know their age but this may not change their demand curve)

2) Generally, its the LOW Risks that will buy Reduced coverage (=high deductible or Low limits. If both realize there is subsidies Low risks will try to identify themselves (buying whatever option you provide for them with less subsidies).
But because high risks would always buy MORE coverage if its subsidized - the solution is usually to reduce the coverage for the low risks and hope that the high risks decide his greater coverage is worth more to him than the getting less coverage (subsidized).

[mathseal]

For Q.9 Cartel + State regulation of rating classes/territories will result in: Supply Shortages (True), Capacity shortages(False).
But Inefficient Distribution...?

I answered true (C), so I'm hoping Jared was right,
but I notice that p.424 says "Prior Approval" has these features... not regulation of RELATIVITIES.
I found several points where Joskow links the State Regulations of relativities to the Supply Shortages... and where he links overall prior approval (backing the Cartel) to the Inefficient production, but can't find a clinching connection.

Anyone have more success?

[jopa]

cas_student, glitto, mathseal: Thanks for your input.

My response to the non-classification question was:

1) Use experience rating - surcharge those who have claims, credit those who do not.

2) Identify profitable segments and market and underwrite to those segments.

Thanks again.

[mathseal]

For those out there who didn't retrieve you question sheets, is this summary helpful? (I've rephrased some questions but hopefully not enough to change the answers!)

In each case I've tried to go with the consensus answer, but notice question #2, #9 and #22

Let me know if this is helpful, because I'm putting together something similar for the Essay questions for my own use, but don't want to needless clutter the forum.


q1. Which of the following elements must be established by plaintiff in a negligence claim?

a1. (E) A Legal duty owed to the plaintiff to use due care (True, these are 3 of 4 on Lorimer p.5)
. Casual Connection between Negligence and the plaintiff's injury (True)
. Actual Loss or Damage to the plaintiff (True)


q2. What is wrong with Ins Comp ABC agreeing to hold harmless an actuary for gross negligence and willful misconduct?

a2. (D??) Hold-harmless agreements cannot apply to Willful/wanton misconduct
This was my pick and it’s also the consensus, but I notice that Lorimer p.28. only says the EXCULPATORY agreements are void if they exclude Willful/Wanton misconduct. If so the answer might really be E (Nothing wrong!)
. Any opinions?


q3. Under which of the following is Res Ipsa Loquitur most likely to occur?

a3. (C) An x-ray finds a surgical instrument in P's patient following surgery (Lorimer p.15)


q4. No Fault is designed to reduce payment of which? (P&S, Punitive, Future Earning, Medical Bills, Guest Liability)

a4. (A) Pain & Suffering (Keeton, p.97)


q5. Which trend did the Institute of Civil Justice find?

a5. (D) Plaintiffs win lawsuits more often (Hensler p.19)


q6. How does the NAIC help regulators?

a6. (B? E?) Developing Proposed Model legislation (True, Brady p.111)
. Monitoring the quality of insurance company investments? (Many say False=B, but maybe SVO?, Brady does list "Valuing insurer's securities")
. Establish Rates for National Flood Insurance Program (False),


q7. What are the goals of NAIC Accreditation program?

a7. (C) Consistency of Solvency Regulation (True. Ettlinger p.161)
. Improve standards of financial exams (True)
. Provide consistency in rate filing approaches (False)


q8. Under which regulatory system can a regulator require withdrawal of a Comm Auto rate?

a8. (E) Use and File, File and Use, No File (Even "no file" states can force a rate to be "withdrawn" - Brady p.76)


q9. Cartel + State regulation of rating classes/territories will result in:

a9. (A? C?) Supply Shortages (True)
. capacity shortages (False) (Joskow clearly says Cartels create excess capacity)
. Inefficient Distribution?? (Cartels+overall rate regulation will, not clear if just relativities will)… compare to Joskow p.423


q10. What problems did Rating Bureaus suffer from post-McF?

a10. (D) Insurers controlled bureau decisions (True)
. Dissimilar Policy forms were not conducive to Bureau rating difficult (False)
. Agents were forced to use bureau rates (True)


q11. Which is true for surplus lines?

a11. (B) If an alien is unable to differentiate surplus from admitted, they need to require more capitalization


q12. What is true for guaranty funds?

a12. (B) A company must be declared insolvent before the guaranty fund may get involved (False, Ettlinger p.224)
. Majority of states use pre-fund (False- only NY pre-funds, p.223)
Guaranty funds receive recovery priorities (True, Ettlinger p.225)


q13. Which is true for Medigap policies?

a13. (D) Subsidized by Payroll Taxes (False)
. Sold by Private Insurers (True)
. Regulated by federal law (True, Weining 12.32)


q14. Which is true for an Auto Assigned Risk Plan?

a14. (D) Any profit/loss on a policy is treated as though the customer has had been a voluntarily accepted driver


q15. Community rating plans historically broke down because:

a15. (C) The migration of low-risk policyholders from the plan


q16. For states with competitive WC state funds which is true:

a16. (A) Profits of private WC firms in these states are similar to private WC in other states.


q17. Which is true for Annual statement treatment of expense?

a17. (B) Inv income/general exp are shown in AS allocated to line (False)
. Focus of AS is on profitability by line (False)
. The IEE allocates of all revenue/expenditures to line(True)


q18. Which of the following is true for IEE?

a18. (C) IEE incurred losses are shown on a calendar year basis (True)
. IEE treats investment income as revenue (True)
. IEE shows profit/loss on an after tax basis (False)


q19. Which is true regarding Annual Statement valuation of real estate?

a19. (E) Schedule A includes inventory of real estate asset values (True, IASA 2.6)
. on Assets page income-producing real estate is at lower of depreciated cost* - encumb or market-encumb (True, IASA 2.6 for all non-occupied)
. Gain/loss = Sale Price - depreciated book value (True 9-14)
Note: “depreciated cost” and book value includes the cost of making improvements.


q20. Where does Annual statement provide information on value of insurer's subsidiaries? (Balance sheet, Schedule D, DM, F or H?)

a20. (B) Schedule D


q21. Rank X,Y,Z Adjusted Surplus to ACL level?
. RBC(X) R's = { 100,150,50,750,1000,2500}, Surplus(X)=5000
. RBC(Y) R's = { 100,250,50,500,1000,1100}, Surplus(Y)=2800
. RBC(Z) not given, but its ACL=500, Surplus(Z) = 1500
{Note Feldblum's paper uses the symbols R3+R4 both with and without the adjustment R3<-R3/2, R4<-R3/2+R4, and q21 does not explain}

a21. (D) Apply covariance rule and remember ACL is now 50% of RBC.
. Z(300%)<Y(332%)<X(345%) if R3&R4 have already been adjusted, otherwise Z(300%)<Y(311%)<X(335%).


q22. Which of the following is true with respect to the Annual Statement valuation of stocks?

a22. (A? D?) A"Stock of a subsidiary is valued using the value prescribed by the NAIC SVO" (False? IASA 9.12 says this for Non-subsidiary, but then spells out the SAP rules. IASA chapter 2 words it differently; saying subsidiaries should follow the guidelines set out by SVO, but that the value is set by varying state laws.)
. B) Ownership of 1% voting stock is sufficient evidence that the company is a subsidiary (False. IASA 9.12 says 10% to be a SCA)
. C) Preferred Stock with a mandatory sinking fund are always valued at amortized costs (False. IASA 9.12 says cost or amortized, or if PSF3-PSF6 lowest cost, amortized or market)
. D) The total change in Unrealized Capital gain(loss) in stocks is reported in the exhibit on capital gains (losses) *
. E) The unrealized capital gain(loss) in stocks is classified as an investment gain or loss. (IASA 9.12 says False, it’s a change in surplus)
* D seems true, IASA 9.12 says the change in the difference between Market and cost is reported in the UW&Inv part 1A, this portion is generally considered unrealized...


q23. If we build a new headquarters which costs are a drain on surplus?

a23. (B) $ -150k = Desks ($100k) and File Cabinets($50k). But Building, Land and Computers/Network (EDP) are admitted assets.


q24. For Canada's Capital Available/Capital Required test, which are removed from capital available?

a24. (C) Investments in affiliates (True)
. Goodwill and other intangibles assets (True)
. Reinsurance Recoverable from unregistered reinsurers (False, I'm assuming the consensus is right on this one, I misplaced the paper)


q25. For Canada's Minimum Capital Test, a homeowners company writes NWP=$45M, $NEP $50M, NUEPR=$20M.

a25. (D) MCT = 8%* Max(NUEPR,50%*NWP)+5%*(Net reserves)= 8%*Max(20M, 22.5M) = $1.8M


q26. Which is in SAP income statement but not GAAP's?

a26. (A) Increase in Non-Admitted assets


q27. Which coverages are identified as a source of potentially serious terrorist losses?

a27. (A) Financial Guaranty, Workers Compensation, but not Fidelity (COPLFR p.69-70)


q28. The Scope of Actuarial Opinion should include all of the following except one, which need not be included:

a28. (B) Reunderwriting initiatives currently underway

[jared]

What does it say about the questions when even with the books open, there are still a number of answers which are undecided?

[Loki]

Q 26 ... What is on SAP Income Statement but not on GAAP income statement.

How can the answer be the change in non admitted assets? Change in non admitted assets is a direct charge to surplus and is not on the income statement.

None of the other answers seemed right to me, either. I left this one blank.

[mathseal]

Loki,
Change in Non-Admitted Assets is not in SAP Income, but the Income statement has the calculation of Income AND (below this) the reconciliation of SAP Income and Change in SAP Surplus.
And because there are no Non-Admitted Assets in GAAP - there's no such entry on the GAAP income sheet - so the Consensus pick is (A).

[GefilteFish144]

Glad to see everyone feels the same way I do.
43 essay questions!!! WTF?! How many last year, 35, 38? It's amazing how they think we can do MORE essay problems with the same amount of time...just amazing. And I agree these types of questions, w/out 'according to', leave interpretation of correct answers wide open...

Funny thing about last year's exam was that while it had shorter questions in number, the questions themselves were longer in general. For example, the IEE question in 2003 had us go through all the steps, while this year they gave us some of the values.

I was also thrown off last year because I did the questions in order, spent too much time on the regulation questions and ended up missing a number of the high-point questions they stacked at the end. They did the same thing this year, but to a lesser extent. Still, I learned my lesson and slogged through the high-point accounting questions first. Sure, it freaked me out, especially when the tax problem was one of the first I worked on, but by saving the easier and less time-consuming regulation questions for the end I found it much easier to pace myself.

As far as the actual questions are concerned, I agree with most of the people on this board, i.e., they were very strange and open-ended, asked insignificant details, and I don't know if I was able to get the 55-60% needed to pass.

Wish all of you lots of luck, especially those of us going for ACAS.

[jopa]

Anyone care to speculate on what the pass mark will be?

[Argh!]

Anyone care to speculate on what the pass mark will be?

I'm thinking it has to be less than last time! No way to tell, though.

How many points are people getting on the MC according to Math Seal's Key? I'm looking at around 16. Argh!!!!

[GefilteFish144]

a2. (D??) Hold-harmless agreements cannot apply to Willful/wanton misconduct
This was my pick and it’s also the consensus, but I notice that Lorimer p.28. only says the EXCULPATORY agreements are void if they exclude Willful/Wanton misconduct. If so the answer might really be E (Nothing wrong!)
. Any opinions?


Says on p.27, "A hold-harmless agreement... may go all the way to a complete assumption of liability for all loss and agree to hold the indemnitee totally harmless." So correct answer according to the text would probably be E, but in the real world I couldn't imagine anyone foolish enough to draw up such a contract. (A lawyer friend of mine completely agrees with that one.) Just goes to show that CAS exams, this one in particular, serve very little practical value and are designed solely to piss people off enough to quit the profession.

[GefilteFish144]

I'm thinking it has to be less than last time! No way to tell, though.

How many points are people getting on the MC according to Math Seal's Key? I'm looking at around 16. Argh!!!!

I think last year was 60%. Will definitely be less, but probably no less than 55. Lowest ever was 44% on Part 7 in 1997, but that exam was such a fiasco it was addressed by the CAS president in the Actuarial Review.

I'm looking at 7 definitely wrong and 4 maybe wrong, looking at a range of 14.25 - 19.25 (including guessing penalty). This is in contract to last year where I answered 15 out of 18 correctly. Figures it would count less when they actually ask reasonable questions....

[Bullfrog1220]

Here's a possible appeal in the making. On #63a, the question asks to calcluate the overdue percentage "that would appear on Sch. F - Part 4".

There are two overdue percentages on there, one which includes everything that isn't current in the numerator, and one which includes amounts over 120 days overdue. As far as I can tell, amounts in dispute are included, but I may be wrong on that. So, that would give two possible answers : 84% (19/22.5) and 64.4% (14.5/22.5).

Can someone verify whether amounts in dispute should be included or not? Neither ratios in this stupid exhibit are actually used in calculating the provision for reinsurance or the slow-paying criteria, so who knows. I don't remember it being discussed in the Feldblum paper.

I really hate these exams. Why do we do this to ourselves?

[lori darling]

as far as i can remember, you include amounts in dispute for the part 4 exhibit.

also, i thought about the two different precentages as well (>90 days, >120 days)...maybe they wanted us to write about that in our response, to see how well we knew the exhibit. i thought about it but did not write it, just assumed they wanted the 90 day figure.

[lori darling]

also, meant to ask, (and sorry in advance b/c i know this gets asked a bunch), when will the exam with the preliminary MC answers be posted on the CAS website? should be any second now, right?

[Truth Soldier]

as far as i can remember, you include amounts in dispute for the part 4 exhibit.

also, i thought about the two different precentages as well (>90 days, >120 days)...maybe they wanted us to write about that in our response, to see how well we knew the exhibit. i thought about it but did not write it, just assumed they wanted the 90 day figure.

actually, the 90-day number isn't in Part 4. because that would make too much sense.

[Loki]

what did you answer for #53? I said probability of ruin for wc and statutory for homeowners. I can see an argument for statutory for wc, too. Was this mentioned in one of the readings?

[frummie]

What did you all put down for the one where the you could not classify policyholders (age, etc.) and you still had to be competitive and profitable? I think they asked for two proposals.

The question talked about classifying based on the driver. So I said, instead, classify based on the vehicle: 1, where the vehicle is garaged and 2, the model year of the vehicle. I like my answers, but they seem so far out in left field than the other answers posted here that I bet I won't get credit.

As for MC, I'm looking at about 11.75 points according the the CAS answer key.

[lori darling]

holy cow, truth soldier, you're right! that question is even more screwed up than i first thought. i answered it using 90 days. ah well.

[GefilteFish144]

what did you answer for #53? I said probability of ruin for wc and statutory for homeowners. I can see an argument for statutory for wc, too. Was this mentioned in one of the readings?


Comes straight from Feldblum's Surplus paper, 3rd page from the end. Ruin's better for homo's, statutory for wc (because of large RBC requirements that often exceed probability of ruin). Strange thing is that #61 also has a reference to that same section of Feldblum's paper.

Don't understand why those pages got 2 questions, but then again, syllabus coverage was really poor on this exam. I figured there would be a significant amount of material on the Statement of Opinion (given that it is the most important thing on the exam), yet all they had were a few bullsh*t questions over obscure details, such as terrorism exposure for financial guaranty, or question #70 regarding materiality. (A concept that is so obvious to anyone with half a brain that I couldn't even begin to figure out how to explain it....)

[Loki]

re question 9. Joskow page 399:

"it is argued here that the combination of cartel reate making and other collusive behaviour with state regulation of rates, rating classes, territories and other insurance practices has resulted in:
(1) the use of a grossly inefficient sales and distribuiton technique
(2) severe supply shortages; and
(3) unnecessarily high prices, excess capacity, but probably only normal profits for the industry as a whole."

Looks liket the answer is C. 1 and 2 only.

[Jobu]

Regarding the Schedule F, Part 4 question - I took about 5 minutes of my precious exam time to write a large note to the graders. Feldblum's article does not mention if disputes are included in part 4, nor does part 4 itself. However, I have Feldblum's packets from his seminar, and in them he says that disputes are not included. However however, if you follow where the part 4 data goes, you can see in Sch. F part 6 column 4, the footnote says "from part 4...less $____ in dispute," which would suggest to me that disputes were in there. This bothered me, so I took an actual AS and added up the numbers, and according to my calculations disputes are included in part 4. This also affects part 7 then.

This is ridiculously unclear. If Shalom himself (the author of the article) doesn't know, how are we supposed to?

[Truth Soldier]

re question 9. Joskow page 399:

"it is argued here that the combination of cartel reate making and other collusive behaviour with state regulation of rates, rating classes, territories and other insurance practices has resulted in:
(1) the use of a grossly inefficient sales and distribuiton technique
(2) severe supply shortages; and
(3) unnecessarily high prices, excess capacity, but probably only normal profits for the industry as a whole."

Looks liket the answer is C. 1 and 2 only.

Except that when Joskow tries to explain why the direct writers haven't taken over the market yet (thereby eliminating the use of a grossly inefficient sales and distribution technique), he comes up with: agency ownership perpetuated by law, the danger of agent revolt, consumer ignorance, and barries to entry for direct writers. Is all this a likely result of ratemaking regulation? I vote no, but I doubt the exam writers/graders agree. Yet.

[Loki]

Truth Soldier ... I hope you are right, because I answered the same as you (B only). Unfortunately, I don't think we'll get credit for this answer.

re question 26: what is in SAP Statement of Income and Retained Earnings but not on a GAAP Statement of Income and Retained Earnings.

First of all, there is no SAP Statement of Income and Retained Earnings. It is just "Statement of Income".

Second, the Statement of Income is only the first 1/2 of the Underwriting and Investment Exhibit. The second 1/2 is the Gains and (Losses) in Surplus. I guess what the CAS is saying is that the entire page is the Statement of Income.

B, C, D and E are clearly not in the Statement of Income.

A. Increase in non-admitted assets is not in the Statement of Income but is in the Gains and (Losses) in Surplus and this is not a GAAP items, so I assume they want you to answer A.

But I think the question is faulty because of my point 1. above, and because what constitues the statement of income (all of page 4 or just the top 1/2) is ambiguous. According to the Feldblum "the nonadmissability of certain assets or the imposition of a statutory liability affects the balance sheet but not the income statement."

Am I crazy? I think I will write the CAS about this question.

[cas_student]

Don't write in....this is one of few that I'm guessing will be marked correct. At this rate, I'm going to end up with NEGATIVE points on the multiple choice. Ugh...I think I'm going to be sick.

[Mapie22]

Page 4's Main Title is Underwriting and Investment Income. (In large font)

The secondary title is Statement of Income. (In large font, but smaller than the main title font.)
Under this title are 5 additional subtitles, all in the same size font:
Underwriting Income
Investment Income
Other Income
Capital and Surplus Account
Gains (and Losses) in Surplus

Each of the line items in this exhibit are numbered sequentially, and do not start over for each subtitle. In other words, the subtitle Underwriting Income does not go from #1 through #11, and then start over at #1 for Investment Income. Rather, it continues to #12, implying that all line items are part of the same exhibit. And since all subtitles fall under both the main and secondary titles of Underwriting and Investment Exhibit and Statement of Income, then Gains (and Losses) in Surplus, and hence Change in nonadmitted assets, are part of the Statement of Income.

That's what I figure the CAS was thinking.

[jared]

The question talked about classifying based on the driver. So I said, instead, classify based on the vehicle: 1, where the vehicle is garaged and 2, the model year of the vehicle. I like my answers, but they seem so far out in left field than the other answers posted here that I bet I won't get credit.

My answers were 1. Miles driven and 2. Territory. Are these driver characteristics?

[purple nurple]

mine were:

1. using characteristics such as length of experience to approximate age and other banned characteristics

2. using the banned characteristics as underwriting criteria instead of rating factors

they seemed logical to me at the time, but who knows what they were looking for...

[Loki]

I got 17.5 on the multiple choice and I approximate my total score to be 58.75. My minimum estimate is 53.5. And the passing score HAS to be less than 60. I am guessing 50-55 (maybe that is wishful thinking?). The next 6 weeks is going to be a killer.

[GefilteFish144]

Posted: Mon May 10, 2004 2:46 pm Post subject:

--------------------------------------------------------------------------------

I got 17.5 on the multiple choice and I approximate my total score to be 58.75. My minimum estimate is 53.5. And the passing score HAS to be less than 60. I am guessing 50-55 (maybe that is wishful thinking?). The next 6 weeks is going to be a killer.



Wouldn't rule out 53.5. Spring 2001 got a 56.5. I didn't read the buzz on the web for that one but when I took the practice it seemed to be one that people had a hard time with because of length (100 questions, including 60 essay) and obscure questions (one particular one that comes to mind is something about rate regulation in Louisiana). I can't imagine that this exam would be considered any easier than '01, so it's conceivable that this could break a record for post-99 futility.

[Mapie22]

*Gulp*

They're out!
http://www.casact.org/admissions/studytools/exam7u/04-7u.pdf

From the CAS:

1. E
2. D
3. C
4. A
5. D
6. E
7. C
8. E
9. C
10. D
11. B
12. B
13. D
14. D
15. C
16. A
17. B
18. C
19. E
20. B
21. D
22. D
23. B
24. C
25. D
26. A
27. C
28. B

I got 17 points, after adjustment for guessing. :swear:

[GefilteFish144]

16.75, puts me right around the 60% mark, guess I could say I'm going at a "passing" clip provided I could do at least as well on the essay, but way too many unknowns to arrive at a conclusion.

[cas_student]

13.75 for me

[Mapie22]

Well, I'm predicting a score for me of about 53-57 points, so I *really* hope the pass score is lower this year. :shake:

[looploop]

I got 20. I hope I get more than 40 pts on my essay. (crossing my fingers)

[frummie]

The question talked about classifying based on the driver. So I said, instead, classify based on the vehicle: 1, where the vehicle is garaged and 2, the model year of the vehicle. I like my answers, but they seem so far out in left field than the other answers posted here that I bet I won't get credit.

My answers were 1. Miles driven and 2. Territory. Are these driver characteristics?

1. According to my company, vehicle characteristic, not a driver characteristic. (don't know what CAS will say) 2. Also Vehicle, not driver. Maybe I'm not so far out after all!

Glad CAS agreed with me on #21:

X: 5000/( (100+(150^2+50^2+750^2+1000^2+2500^2)^0.5 x 0.5) = 3.449
Y: 2800/ ( (100+(250^2+50^2+500^2+1000^2+1100^2)^0.5 x 0.5) = 3.316
Z: 1500/500 = 3.00

D. Z<Y<X

That 1/2 R3 thing is 1/2 of reinsurance and other recoverables go into the final R3 (which is given) and 1/2 goes into final R4 (again, which is given). Because the final R3 is given, you don't divide anything up.

[syd]

16.75 for me. Ohhhh it's going to be close

[gonnagetit]

I plan to dispute #6. Below is an excerpt from the NAIC's own web site:

“The NAIC's Securities Valuation Office (SVO), located in New York City, is responsible for the day-to-day credit quality assessment and valuation of securities owned by state regulated insurance companies. Insurance companies report ownership of securities to the SVO when such securities are eligible for filing on Schedule D or DA of the NAIC Financial Statement Blank. The SVO conducts credit analysis on these securities for the purpose of assigning an NAIC designation and/or unit price. These designations and unit prices are produced solely for the benefit of NAIC members who may utilize them as part of the member's monitoring of the financial condition of its domiciliary insurers.”

The NAIC definitely values insurance company investments (Brady 111), but it's the regulator's responsibility to monitor their quality.

[mathseal]

It appears I got 23 right, 5 wrong = 21.75.
(But don't envy me, Schedule P has been my downfall since before today's "prior" row was UEPR) :viola:

Here's my best guess as to the answers for 29-46, I'd really like to hear if I've missed stuff.

In total these make up 24.25 points, about a third of the total written answer problems.

Good Luck to all
======================================

29 Alice=25% fault suffers $10k, Bob 75% fault suffers $20k, if there's no netting how much would each pay the other, under:
29a) Pure Comparative negligence rule <0.5>
29b) 50% Comparative negligence rule, <0.5>
29c) Contributory negligence rule <0.5>
[Keeton p.74, Mathseal]: a) Alice pays Bob 25%*20k=$5000, Bob pays Alice 75%*10k=$7500
. b) Bob still pays Alice 75%*10k=$7500, but Bob is precluded from collecting from Alice
. c) Alice and Bob are both precluded from recovering

30) Contrast no-fault & tort systems for personal auto with respect to:
30a) Deterrence of risky behavior <0.5>
30b) Speed of claim settlement <0.5>
[Mathseal]: a) No Fault provides less deterrence, as parties are compensated for their injuries regardless of fault..
. Under tort only an innocent party could be compensated, providing substantial deterrence to unsafe driving..
. b) Because no-fault pays without having to determine fault, it is faster in settling claims.
{These are my answers, but I could be mixing it up with O'connell & Joost which has been removed}
(For example, even no-fault has some deterrence, PD is not covered, and no fault premiums would be based on experience)

31) Discuss two counter arguments to "Insurers' limited exemption facilitates collusion to increase prices" <1.0>
Harrington (p212) - 1) Unless prevented by price regulation - insurance costs are heterogeneous;
. 2) the structure facilitates competition not collusion;
. 3) pooling of information actually creates a more efficient market

32) Discuss two counter arguments to "take-all comers would benefit the public" <1.0>
NAIC Rating (p35) - 1) Any restriction on the free action will lead to conservative pricing.
. 2) Insurers would be pushed to replace their current UW guidelines with over-refined pricing guidelines.

33) Describe two reasons why, in face of Gov't imposed cross-subsidies an insurer considering exiting might decide not to exit. <1.0>
Bartlett (p.483) "States may impose Severe restrictions, Insurers lose economies of scope and lose sunk costs"

34a) For Redlining, what was HUD's challenge to insurers? <0.5>
34b) Describe two reasons why an insurer might choose not to offer insurance to urban residents.<1.0>
34c) What roles should actuaries play in this redlining issue? <0.5>
A) Ghezzi (p.1) HUD has argued that absent a "compelling" business reason, insurers should not use any criteria that could discriminate (have a disparate impact?) - some courts have agreed.
B) {I don't have Ghezzi handy- anyone?} [Mathseal]: Higher loss costs or No production channels
C) Ghezzi (p.2-3) Actuaries should refine their pricing analysis.
. Review UW guidelines, to support with data if possible or suggest revisions/removal if support is impossible;
. Review mix of business by region - look for regions of underrepresentation.

35A) In designing a simple excess profit law, give an example of an allowance for short-run fluctuation? <0.5>
35B) Should Personal auto and Products have the same allowance? Explain? <0.5>
35C) What two potential errors should be considered? <0.5>
A) [Mathseal based on Williams' Florida p454] For example allowing actual UW gain to be 5% higher than the allowed profit in the filing.
. [alternatively could base on NY, but that would mean spelling out Net Worth etc, which runs counter to the "simple" constraint]
B) [Mathseal] No, Products annual results are more volatile than Auto, so we should provide a larger allowance.
C) [Williams p460-461] 1) Finding short-run profits to be excessive when the long-run profits are reasonable
. 2) Finding short-run profits not to be excessive when long-run profits are excessive

36A) Identify four actions a regulator might take if an ability to pay is suspect. <1.0>
36B) Why does a regulator need to consider how/if to publicize this action? <0.5>
. A) Ettlinger (p218), 1) Limit their new/renewal premium;
. 2) Purchase more reinsurance;
. 3) Increase capital;
. 4) restrict payment of dividends;
. 5) reduce operating expenses;
. 6) restrict their investment;
. 7) document their rates.
. B) {I'm sure this is the same page, but my notes are poor}
. [Mathseal] Consumer & Capital Market's devalue a company perceived to be weak.
If publicity causes a loss of customers and access to capital, it will cause a weak company to fail.

37A) Briefly describe the response taken to IRIS tests <1.0>
37B) Briefly describe the response taken to RBC calculation <1.0>
. A) [Troxel p223, Ettlinger p.148 is probably similar] Four or more IRIS results outside the normal range mark a company as a priority for regulatory review, but are not necessarily a sign of weakness.
. B) [Feldblum RBC p384] Low capital levels (<150% RBC's ACL) will empower the regulator to take corrective action or take control. At very low levels (<70% ACL) will compel the regulator to do so.

38A) Describe how prior approval might affect the size of the residual market <0.5>
38B) Describe how prior approval might affect long-term insurer profits <0.5>
. A) {probably joscow??} [Mathseal] Residual Markets tend to be largest in prior approval states
. (I don't think we need to say why:) Prior approval creates lags between an insurer's allowable rate and the expected loss for some customers
. B) [Joscow/Bartlett] There is no evidence that prior approval has affected long-term insurer profits

39) Beginning in the 1960's a significant # of states moved away from prior approval. Briefly discuss 3 factors that influenced this trend. <1.5>
. [Harrington? Anyone have the reference?]
. [Mathseal] The NAIC took a pro-competitve stance,
. Residual markets became a growing problem
. The market was becoming more competitive with more companies deviating from bureau rates.

40a) It has been said "prior approval protects consumers from inadvertently buying from high price coverages", provide a counter-argument.<0.5>
40b) Identify an alternative government action to address this issue. <0.5>
. A) {Joscow? Harrington?} [Mathseal] Competition provides strong disincentives to high priced and/or inefficient producers
. B) [Harrington p.213] Better to require increased insurer disclosure
. [Joscow, p.424] Regulators should focus on improving consumer information

41a) Briefly describe one reason why historic regulation supported bureau-based rates <0.5>
41b) Briefly describe two reasons ISO switch to filing loss costs. <1.0>
. a) [Joscow p.392, but Wagner is similar] Fire Insurance was the dominant line until recently. And back in the 1800's-early 1900's various compacts or cartels were established to stop prices from being too *low*, leading to insolvencies. (But even these were not very successful until backed by regulators.)
. b) [Krohm p.319] (1) A NAIC task force concluded that in general while collective loss data was good, companies should set their own expense and profit loads
. 2) 19 states brought suit against ISO and firms alleging boycott/conspiracy in certain commercial insurance coverages.

42a) SEUW was a landmark case, discuss the primary ruling and its impact. <1.0>
42b) Describe 2 provisions of McF and two related impacts. <1.0>
42c) Briefly how might an insurer benefit from McF's repeal? <0.25>
a) [Various, Mathseal] Overturned Paul vs Virginia. Insurance was interstate commerce - subject to federal law (including Sherman). State regulation seemed in jeopardy
b) [Various, Mathseal] Most Federal laws won't apply to insurance (if regulated by states), Sherman still prevents boycott; Led to Prior Approval and new state regulation
c) [Mathseal] If Federal law applied (instead of states), laws would be more uniform, so simpler for multistate insurers.

43a) What is rational for RBC giving 50% charge for Alien ins subsidiaries, rather than 100%? <0.5>
43b) What is the charge for US insurance subsidiaries? <0.25>
43c) Why is charge different for US subsidiaries than aliens? <0.25>
43d) Discuss an argument for and against a higher RBC alien charge? <0.5>
[Feldblum RBC 311-312]
. a) the average RBC for U.S.-domiciled companies is about 50% of their carrying values (see also 43d)
. b) The subsidiary's RBC requirement flows is passed directly into parent's R0.
. c) However, there is RBC requirement for an alien subsidiary, and because of the different accounting statements an RBC equivalent would be difficult to determine.
. d) Regulators cannot effectively regulate foreign subsidiaries, so they wanted RBC to be conservative, But a high charge would make it difficult for US companies from competing in foreign markets

44) A consulting firm developed a model for pricing CW terrorism based just on the WTC collapse. Describe two concerns an insurance company might have with the model?<1.0>
. Was the CAS looking for an analogy to Musulin p356?
. 1) Is it Proprietary?
. 2) Does it generate relative damage and insured losses comparable to WTC? :-?

. But is the real risk of the model is its ability to explain the WTC now that we know it happened (and doing so in a way regulators will approve)? I think it is figuring out what the NEXT terrorist risk is...
So my questions were more concerned with reflecting the breadth of possible terrorism threats (see COPLFR's list of affected coverages!) and generalizing to a variety of building types.


45) Provide two brief arguments against Companies manipulating their cat models in ways unfair to policyholders <1.0>
. Musulin(p358) 1) Inflating the model will reduce competitiveness
. and 2) upset reinsurers & equity markets.

46a) Argue against gov't insurance to fill insurance needs not met by private insurers <0.25 each>
46b) … to force people to buy
46c)… to obtain greater efficiency
46d)… to achieve collateral social purpose
. a) Greene(p~195) Gov't does not meet other unfulfilled needs/ Doing so often creates subsidies which are not economically efficient or fair
. b) Private insurance is capable of meeting the needs of compulsion without excessive profit
. c) Government doesn't remove the costs of moving products from buyer to seller - it simply spreads it so it harder to see the overhead.
. d) Usually the Social purpose be achieved directly without involving insurance (such as poverty relief, or direct payments for the blind)

[lori darling]

wow, mathseal, your post is making me tired. i'll have to read it in pieces. :D

gonnagetit - i dunno, "monitoring" vs. "valuing" seems like a stretch. regulators rely on the NAIC for keeping track of (monitoring) changes in the value of investments in order to to give them a quality rating. regulators are looking more at the overall picture than at keeping track of individual investments, i would think.

just my two cents....anything is worth a try though...

[Klaymen]

I got 15.5 right. Oh, and I passed the exam last year and only took the MC out of curiosity :D . Forgive me for forgetting the Canadian margin and never having heard of Medigap. :duh:

[Fightin Engineer]

For #6, I took "monitoring the quality of insurer investments" to be referring to the assignment of bond ratings (classes). I almost used false for that item until I thought of bond ratings.

[gonnagetit]

mathseal: Any chance you'll be posting a sample answer for #58?

#58 Anyone?

[Jobu]

Anyone willing to share how they did #69?

My thinking was that Bonds Held to Maturity were valued at amortized cost, and thus didn't qualify as unrealized capital gains (because you're holding them until maturity). So that leaves 130,000 of UCG's, which after taxes is 84,500.

I think someone earlier proposed 65,000. Anyone else feel good about their answer?

[gonnagetit]

jobu: I did the exact same thing you did on #69 - $84,500.

Take it for what you will from someone who got only 18.5 on the multiple choice.

[Bullfrog1220]

I think I came up with the same answer on #69. At least I seem to remember going through the same logic that you did, and those numbers look the same. I wasn't very confident when I did this one, so I'm hoping that you're right.

[mathseal]

Here is my best guess for problems 47-53.
Because I'm weak on accounting, I'm going to stop here.
Would some other kind soul take over the next batch? I think many of the answers have been offered already, in which case it might just mean sorting through the offered answers.


47a) Compare reinsurance facility to JUA in placement of risks <0.5>
47b) Compare reinsurance facility to JUA in sharing of profit <0.5>
47c) Compare reinsurance facility to JUA in awareness of placement <0.5>
. a) [Hamilton and Ferguson 9.37], Reinsur Facility: Insured choose insurer (take all comer) but insurer elects to put in facility, JUA is based on insurer rejection
. b) Both distribute profit/loss among all the insurers writing the state's voluntary risks.
. c) Reins facility: Insured does not know, JUA: Insured knows he is handled by service carrier

48a) Describe current-cost financing and impact on participants if terminated <0.75>
48b) Describe full reserve financing and impact on participants if terminated <0.75>
. a) [Rejda p.149] Current-cost financing = "Pay-as-you-go", funding is sufficient to pay claims as needed.
. Under current-cost, if plan terminates there is no funding for promised future benefits
. b) Full reserve means funding sufficient to pay (present value of ) the accurual of future benefits earned.
. If the plan terminates, the full reserve should be sufficient to protect the plans participants.

49a) Explain the difference between the financing of social insurance and social welfare. <0.5>
49b) Identify two social insurance programs and how they are financed <1.0>
. a) [Greene p160] Welfare is financed from general tax revenue, its cost spread over society.
Social insurance is financed primarily through premiums of the current or future beneficiaries.
<While Greene also notes Welfare's need test, etc., these wouldn't relate to financing>
. b) [Mathseal] I said "OASDHI (through payroll tax) and Flood (through premium)" but there are many other possible choices..

50a) Describe the funding of Medicare Part A - Hospital <0.5>
50b) Describe the funding of Medicare Part B - Supplemental Medical <0.5>
. [Weining/Rejda]
. a) Payroll deduction from workers (future beneficiaries)
. b) 27% from premiums paid by current beneficiaries and 73% from general tax revenue.

51a) The federal gov't can offer insurance as a partner, competitor or exclusive. Identify a case of each. <0.75>
51b) Describe how a state could operate a WC program as a partner/competitor/exclusive <0.75>
. a) [Greene] Exclusive (Pension Guaranty, Loan Guarentees)
. Partnership (Flood, Nuclear, Export Credit), All-Risk Crop was originally exclusive, but is now closer to partnership
. Competition (some social security benefits, Crime, Veteran's Life, Crop hail/fire)
. {Remember not to use Unemployment, WC, or State Property funds, which are run by states}
. b) [Mathseal] Competitor - Some states have WC funds which compete with private insurers for WC business.
Exclusive - A few states have exclusive WC funds, which by law prevent private insurers from writing WC business.
Partnership - A state could create a reinsurance fund to help the private market deal with catastrophic WC risk (such as Terrorism?)
* As far I know Greene did not discuss this, and it doesn't exist in the US, but you can still describe how it would work...

52) State X's loss experience varies by driver Age+record, but the state bans the use of driver characteristics.
Describe two ways a firm could still write competitve & profitable business.<1.5>

. [Mathseal, but see RBC p322] 1) Use affiliated companies with differing rates and UW guidelines.
. [Harrington/Doerpinghaus p.65] 2) Use consumer sorting by offering a substantial discount for a high deductible - this attracts mostly low risk drivers.
.
. Some have suggested other characteristics (miles, territory, car model), but my guess is that the CAS won't take that - remember they didn't just ban Age & record.
. Jopa & Glitto suggested relying more heavily on experience rating, as tends to happen in restricted classification situations...
. I see two issues there: i) The state would argue that experience rate = driver record, and you can't use that.
. ii) H/D [p.75] specifically say that individual drivers have limited credibility (if you over-penalize poor drivers you won't be competitive, and if you over credit good drivers you won't be profitable!)
. [Jopa & Purple Nurple] Use characteristics as UW criteria
(This is similar to my #1 without mentioning affiliates, probably worth part or full credit).

53) Two methods to estimate required capital for insurance companies are Statutory required & Prob of ruin
53a/b) Which is better for WC? For Homeowners? <0.5 each>
. I agree with Gefiltefish:
. "Comes straight from Feldblum's Surplus paper, 3rd page from the end. Ruin's better for homo's, statutory for wc (because of large RBC requirements that often exceed probability of ruin)"
I also noted that Homeowner's ruin risk is greater because of exposure to substantial catastrophe risk.

[mathseal]

mathseal: Any chance you'll be posting a sample answer for #58?

Gonnagetit,
I've done as much as I'm going to for the public key as I can.
I skipped 56 and 58 on the exam.

But I'll take a stab at it if you'll look over some of my answers :roll2:

I've looked over 58, I'm a little confused why about 58a - why ask about "Regular Taxable income" *except* using the IRS Discount (58b)?

It would have made more sense if they had asked 58a -
"Calculate Statutory Income on an after-discount basis, using options 1, 2 and 3.

my best guess would be something like:


58a1)
Prior Incurred Loss: $2,000,000
Current Incurred Loss: $2,000,000
Statutory Income = 0


58a2)
Prior Incurred Loss: $2,000,000
Current Incurred Loss: $ 725,000

Reduction in undiscounted Reserve: $0
Change in Reserve Discount: +$1,275,000
=============================
Total Statutory Income = $1,275,000

58a3)
Prior Incurred Loss: $2,000,000
Current Incurred Loss: $ 775,000

Reduction in undiscounted Reserve: $1,225,000
Change in Reserve Discount: + 0
=============================
Total Statutory Income = $1,225,000

==========
58b1+2)
Prior Discounted Incurred Loss: $1,640,000
Curr Discounted Incurred Loss: $1,600,000

Reduction in undiscounted Res: $ 0
Change in Reserve Discount: + 40,000
=============================
Regular Taxable Income = $ 40,000

58b3)
Prior Discounted Incurred Loss: $1,640,000
Current Incurred Loss: $ 775,000

Reduction in undiscounted Res: $1,225,000
Change in Reserve Discount: - 360,000 (unwind 2002 discount)
=============================
Regular Taxable Income = $ 865,000


58c) I'm not sure what they want for this. Maybe there's an exhibit somewhere on the syllabus where they do such a reconciliation?
The reason they are different is that the IRS requires companies use its discount (Micro is new), and companies that discount their Annual statement must first adjust their reserves to full value.
Also note that Micro had MORE taxable income in 2002 when we first set up the IRS reserve.

[mathseal]

For #63c, did anyone else get 2.9M?
While I messed up #63a along with most everyone else, I thought I was clear that the slow-pay penalty
= 20%* the greater of {Unsecured Total Recoverable or 90plus Overdue}, this overdue includes both undisputed+disputed
But Extra posted something different:
Provision for rein = 20% of max(unsecured + dispute, overdue).
= 20% of max( $0 + $12, $2.5)
= $2.4M.
And while people have chimed in for 63a and 63b, does nobody disagree with 63c?
I went through the motions of the real schedule F, to see if I messed up somewhere, but if so I can't find it.

Amt Accid P pays R pays P Days Status
12.0 4-Jan 5-Feb Denied 330 90+ Overdue/disp
4.0 9-Mar 2-Jun 1-Aug 212 Paid 90+ days ago
3.0 16-Apr 17-May 29-Oct 228 Paid in last 90 days
2.5 3-Jun 19-Jul Unpaid 165 90+ Overdue
4.5 22-Aug 4-Nov Unpaid 57 overdue (not yet 90+)
3.5 1-Nov Unpaid Unpaid Not paid
8.0 Ceded Unearned Premium
20.0 Letter of Credit from R to P (for unpaid claims and UEPR)

Sched P part 4
(8) 90-120 overdue (incl dispute) 0
(9) 120+ overdue (incl dispute) 14.5
Sched P part 6
(4) 90+ due, not disputed: 2.5
(5) Total Reins Recoverable on paid* 7.0
(6) Amount received prior 90 days 3.0
(7) =(4)/ [(5)+(6)] 25.0%
(P6, col 8-11 are just for those with <20%, the non-slow pay insurers)

* I excluded disputed from (5) as well as (4)

Sched P part 7
(4) Recoverable all items 30.5
(5) Funds held 0.0
(6) Letter of Credit 20.0
(7/8/9) Ceded Balances payable,offsets 0.0
(10) Min(cols 5 to 9; (4)) 20.0
(11) Col (4)-(10) 10.5
(12) Greater of (11) or F4.(8)+(9) 14.5
Final overdue authorized = 2.9

[Jobu]

Mathseal - I haven't seen anyone suggest my answer yet, so take this for what it's worth.

I also got .25 for part b, so since the reinsurer is slow-paying the penalty is 20% of the larger of unsecured recoverables and overdue. Whether or not disputes should be included is debatable. I think the AS includes them, but I'm not sure the CAS knows that.

Anywhoo, I'm not totally sure how you got $30.5m for total recoverables, but since the claims of $4m and $3m have already been paid by the reinsurer, I don't think they should be included. Also, I included the $8m of unearned premium ceded as part of the security. Thus the $28m of security is enough to make it all secured; the amount 91+ days overdue is $2.5m. I didn't include disputes (and I wrote them a note explaining why), but I think you could justifiably include them.

20% of $2.5m is $500,000 - this was my answer. If I had included disputes it would have been 20%*$14.5m = $2.9m.

[Loki]

Re question 63

I agree that the formula for c. is 20%*max( unsecured recoverables, overdues more than 90 days). The unsecured definitely includes disputed items (see Feldblum pg 18 point 2 at top of page).

The $20 M collateral is reduced for the $8 M of ceded uep. So net collateral applicable to losses is $12 M.

So, I answered:

20%*max(12+2.5+4.5+3.5-12,2.5) = 20%*max(10.5,2.5)=$2.1M

Anyone agree/disagree?

[Jobu]

Loki - I agree that the unsecured amount should include disputes; I also think the overdue amount should include disputes, but past CAS solutions do not include them.

I must have mixed up my ceded uep with my ceded balances payable in adding up the amount of security.

[Extra]

I calculated unsecured as $0 because I was thinking security did not affect amounts in dispute or overdue, which would leave plenty from the $20M to cover the UEP and other recoverables. However, security cannont reduce the provisions for amounts in dispute or overdue. I agree with Loki that unsecured = $10.5M, with a final answer of $2.1M.

[gonnagetit]

Loki:

I don't think the 3.5 should be included in the recoverables since it hasn't yet been paid by the primary company. Here's what I did on #63c:

Total Recoverables = 12 + 2.5 + 4.5 + 8 = 27
Security = 20
Unsecured = 7
Penalty = $1.4

[Loki]

gonnagettit:

you're right. no 3.5 in unsecured recoverables. answer is $1.4M That's what my answer was ... just wasn't looking at my notes when I typed the answer above (good thing I wasn't taking the test today!).

[gonnagetit]

Loki:

Good thing I wasn't taking the exam today either. I panicked for a minute when I saw the 12M * 20% = 2.4M answer, thinking for a minute that the amount in dispute couldn't be collateralized. I had to pull out the paper to make sure:

"For unauthorized reinsurers and for non-slow-paying authorized reinsurers, security does not offset the provision for reinsurance for amounts in dispute. For slow-paying authorized reinsurers, security has the same effect on amounts in dispute as on other recoverables, since all recoverables are treated together."

I think they still may have gotten me on part (a), I can't remember exactly what I did there.

[Jobu]

Why should the 3.5 not be included? Schedule F part 7 column 4 says, "Reinsurance recoverable on all items," whereas column 5 on part 6 says, "Total reinsurance recoverable on paid losses and LAE."

If it was only on paid losses in part 7 wouldn't it say so?

[Redhead]

I'm so glad I don't obsess like this anymore...no offense guys, I just would rather spend my time on something more fun...especially since there's no way to know how they'll grade the essay, it's never how you think. But have fun!

[lori darling]

no offense meant as well...but i agree with redhead. re-hashing the essay questions makes me feel even worse, even more defeated. but, to each his own. have at it!

[Jobu]

No offense taken. But are you suggesting that there are more fun things to do than obsess over the exam? Deep down every actuary is a nerd obsessed with details; I expect nothing less from us than debating every last piece of minutiae.

And let's be honest, if you really didn't care, you wouldn't be here reading the discussion, would you?

[lori darling]

i'm already trying to focus on the fall exam. i'll pick this one up again next spring when they have the official answers released by then anyway.

and honestly, i didn't read all the long posts, that was the point. i kept coming back to the discussion to b*tch and complain and commiserate with others who felt my pain.

i'm sure there are many that are gaining alot from your discussions. alot of people read, but don't post. lots of folks appreciate what you're doing (or will at some point!). it's pretty impressive actually. i think i'm just lazy! :wink:

oh, and not to mention, you guys sound like you probably passed. i don't feel that way at all. i'm lazy and bitter apparently! :shake:

[mathseal]

oh, and not to mention, you guys sound like you probably passed.

Well I hope so. At this point it's looking like I scored about 80-85% of the law points, but only 40-45% of the accounting. That should be enough

(Is it just me, or do other people favor one side more strongly?)

But I guess I'll concur with the nerd theory. In the years before the CAS went public with the pass-mark, I used to compile everyone's analysis to help us refine our estimates :crazy: .

[Loki]

No offense taken! I know I am a detail-obsessed nerd who can't stop thinking about this exam. My husband would LOVE it if I could stop obsessing (over this and a lot of other stuff). He doesn't understand that it isn't over in my head ... I NEED TO KNOW! Hubby also doesn't understand that my detail obsessed nerdiness pays the bills by allowing me have a good career.

I do think I probably passed ... I think I got 63.5 points (low end guess of 57) ... and that is why I'm obsessing. If I knew I failed, I wouldn't even be here. I guess I am looking for some certainty, which I know I won't get for 6 more weeks.

Sorry, but I can't help myself .... the 3.5 isn't included because it isn't paid by the ceding company yet and therefore it is not a recoverable yet. It would still be considered IBNR to the reinsurer.

Gonnagetit: I have gone back to Felblum's paper numerous times today, too. So you're not the only one. I thought I got 63 wrong because most people seemed to answer 2.4. I was glad to add the extra 1.5 points to my "score".

I am sorry for those of you who think you failed. I have been there more times than I can count and I know it sucks!!!!!!!! And when that happens you just need to move on and concentrate on the next one (that, and drink heavily!).

[mathseal]

Loki+Gonnagetit,
Maybe I'm being stubborn on #63c :horse:
(I want that tasty 1.5 points too - but maybe I should just move on and encourage you to help me with the other accounting questions)

But I see three problems with your answer:

1) We agree that $8M Unearned Premium is in the "Total recoverable",
That's a provision for claims that haven't even happened yet.
So why wouldn't need to provide for the reinsurers IBNR + Reserves?

2) Look at the example on Pages 37-38, Feldblum clearly brings in the Recoverable on Paid as part of his slow pay calculation.

{The text is less direct:
Look at the top of Feldblum's page 22 Feldblum says the unsecured penalty is just like that for unauthorized - except it's 20% rather than 100%.
Then if you flip to page 35 - he says the Total recoverable on an unauthorized applies to unpaid, paids and UEPR.}

3) Lastly (and this is scary), Feldblum's approach differs from Schedule F!

Schedule F.P.7.12 says to take the greater of the unsecured (which you have as 7, and I have as 10.5) and the amounts from the sum of F.4.8+F.4.9. But aren't these amounts on F.4 just the amount 90+ overdue including disputed payments = 2.5+12?
If so then don't we get Max(unsecured, 14.5), 20% of which is the final penalty = 2.9 no matter whose unsecured calc is right.

But if I'm wrong and F4 excludes dispute, then wouldn't we have a weird situation when a fully secured company could have LESS penalty if it was Slow Paying? (Non-slow payers have no security adjustment but clearly include disputes)

[Loki]

Mathseal,

I hope this helps:

Your point 1. You answered your own question. The $8 million of ceded unearned premium is netted against the $20 million collateral because the uep is for unreported (to the reinsurer) claims, i.e. IBNR and claims only known to the ceding company. So, the $3.5 million claim which is not paid by the ceding company yet and, therefore isn't due from the reinsurer yet, is part of the $8 million uepr. Therefore, by subtracting the $8 million uepr from the collateral, you are accounting for the $3.5 million claim.

On page 35, were the terms "paid" and "unpaid" are used, they referred to whether the claim is paid by the ceding company, or not. Yes, the unearned premium reserve covers ibnr for the ceding company abut those claims are also ibnr for the reinsurer. But the ibnr for the reinsurer also includes claims not known to them yet, which are known but not paid by the ceding company.

If you say that the unsecured recoverable is: (12 + 2.5 + 4.5 + 3.5 + 8 - 20), then you are double counting the 3.5 because the 8 accounts for the 3.5.

On your point 2 ... the calculation on to test whether an authorized reinsurer is slow, or not, doesn't have anything to do with the calculation of the penalty. For example, the "slow" calculation doesn't include items in dispute, but items in dispute are included in the penalty calculation.
Also, your point is about recoverable on PAID ( that is, paid by the ceding company), which the 3.5 is not.

Point 3 .. Feldblum's example on page 39 clearly shows that the overdue on paid portion of the formula does not include items in dispute. I agree that schedule F part 4 includes disputes, so I don't know what to say. A letter to the CAS might be in order. They should allow it both ways.

Loki

[GefilteFish144]

Posted: Wed May 12, 2004 4:26 pm Post subject:

--------------------------------------------------------------------------------

i'm already trying to focus on the fall exam. i'll pick this one up again next spring when they have the official answers released by then anyway.



Wow, already studying early! Actually, I'll probably start my fall studies in about 2-3 weeks. Do you think All10 will come out with their new study manuals then, or will I have to wait till July?

[lori darling]

well, i'm focusing on getting things ready, so that when the mood strikes me in the next few weeks, i'll have the material ready.

according to the all10 website, order forms will be available starting may 22 (that's next saturday). i think the manual will be two volumes just like exam 7.

[Fightin Engineer]

The 3.5 is not double counted. The UEPR is only for claims not yet incurred. IBNR and case reserves are for incurred losses (not reported and reported respectively). The IBNR and case reserves are reduced for anticipated reinsurance, as is the UEPR, so it is reasonable to include both in the provision for reinsurance.

Also, Feldblum discusses the fact that disputes are offset by collateral for slow-paying reinsurers, but not for other authorized reinsurers on p. 23. Footnote 37 suggests that this may have been an oversight in the design of Schedule F.

[Loki]

OH #$%@&*%! Fighten Engineer, you are right. I could kick myself! I guess I won't get 1.5 points for my answer, but I should get some credit for getting the rest of it right (and I wrote out the formula in words so that should get me something).

[GefilteFish144]

according to the all10 website, order forms will be available starting may 22 (that's next saturday). i think the manual will be two volumes just like exam 7.

Saw the website, I read that the Exam 9 manual won't be ready till June 17. Could probably figure enough out on my own till then. They also said that there will be 750 pages, about 400 pages less than Exam 7. Thank God for small miracles!

[mathseal]

Nobody picked up the slack, so before we all go into hibernation mode let me quickly go over our current accounting answers, many taken from Extra's post.
Remember I really want your input as I expect to get less than half these points right! :duh:


54 a/b/c): Describe how uncollectible reinsurance is handled by:
Schedule F, Actuarial Opinion, Note 17

I said F=Formula, Actuary=Must opine even if not material, but I messed up the note.

55) How would a cedents/assuming balance&income statement reflect a $50M retroreinsurance for $45M premium. This is covered in SSAP62

56) Draft Asbestos/Environmental Reserves for the AS Notes
I assume this comes from the Feldblum paper on Selected Notes.

57) Given the balance sheets of two reinsurers ABC & XYZ:

57a) For 2 asset classes (of 7 listed) discuss one potential concern with the quality of each asset class.
I said i) Bonds - held at amortized value, could be very different than current market values.
ii) Reinsurance recoverable- quality & subject to dispute

57b) For a), where in AS could regulator learn more about Asset quality?
Bonds - Schedule D (should I have been more specific?)
Reinsurance - Schedule F parts 3/4.

57c) Compare & Contrast with respect to reserve leverage.
I calculated XYZ at 1.36 and ABC at 2.17

57d) Compare & contrast with respect to reinsurance items
These companies ARE reinsurers, and they both retrocede, so I was a little unclear what the wanted, but I noted XYZ appears to retrocedes to weaker companies.

57e) Which company has the stronger balance sheet? Explain.
Like several others I noted XYZ seemed stronger. I noted they had liquid>Liabilities.
I think "Extra" noted they had more invested assets and surplus.

58) Noone's really clear on this one

59) If P/C industry reserves are significantly deficient and all companies corrected at once - what would impact be on company RBC results?
Feldblum's paper discusses the "triple whammy", here though its the industry shifting, not a specific company, but the result is similar:
i) the industry worst case would get a shock upward
ii) each company would have more reserves
iii) The strengthening would sap companies free surplus.

i+ii each raise R4, and iii cuts the surplus - all of which creates unfavorable RBC results.

60a) Identify two assets not admitted on statutory balance sheet?
Agents balances more than 90+ days overdue
Furniture and Equipment (other than EDP)
Most deferred tax assets (although codification makes this more iffy)
(Some of EBUB, etc)

60b) Other than change in Non-Admitted identify two other adjustments to surplus that don't affect stuatutory income
Unrealized Capital Gain
Change in deferred tax
Change in Schedule F penalty
Capital paid in
Dividends paid to stockholders
etc.

61a) Identify Feldblum's capital base being sure to identify 3 components of capital (very similar to #53)

I assumed the 3 components were:
i) Equity from not discounting Statutory Loss Reserves
ii) Equity in not reflecting DPAC in Unearned Premium
iii) Free Surplus

61b) When shouldn't you use this - same as Q#53, use the statutory based capital unless the theoretical indicated need is greater (for example for homeowners)

62) We're shown Case O/S and Paid/Reported triangles,
62a) how do we get from Schedule P exhibits.
Case O/S=Incurred(2)-Paid(3)-Bulk(4), Open claims=part 5;
$ Paid(P3) / #reported(P5);
Do you think we'd need to say which subpart of 5 was which?

62b) Test managements assertions about the business.
I noted large growth in avg o/s possibly due to more closing w/o pay, $paid however seem to be trending…

63) We've discussed to death. I got Max(20%*(10.5, 2.5+12))=2.9
but others excluded the dispute from the second term and got 2.1.
Still others calculated the Unsecured piece differently...

64) Calculate Statutory Net Income, I think Extra had this right=$4.75.
Net = NEP+(Investment Income+Realized CG)-(Inc Loss+Inc LAE)-Other Inv Exp - Dividends to policyholders

65) IEE calculation.
I agree with Extra's: IG on IT funds = 143.6; IG on CS funds = 42.

66) Schedule P/RBC calculation:
66a) 2-year development = $89 (including the prior row)
66b) RBC %= 13.8% (13.9% if you round steps to 3 digits- but NAIC says you're not supposed to)

67) Give two counter arguments to RBC's squareroot rule underestimating by ignoring positive correlations among terms.
(RBC p361) i) The sqrt rule overestimates need if parameters are normal or lognormal.
. ii) The correlation among the risk factors is very weak, so the underestimate of the needed capital is small,
. iii) We HAVE accounted for the Credit / Reserve correlation

68) Calculate canadian PDR, if UEPR=$1M, with exp loss=$800k, Maintenance=$100k, Internal exp=$250k, Dpac=$50k and no investment.
The consensus appears to be $150k (and also take down DPAC)

69) Bonds held increase from 800 to 1000
Available for sale 2000 to 2100
Stocks 300 to 330.
No impairment or changes. Calculate URCG net of 35% deferred tax.

Someone said $65, I thought it was 84.5 = 130x(1-35%)
Anyone else?

70) Actuarial Opinion: Explain why relative rather than absolute size should be considered material
Not sure if they have a quote in mind, but the closest I found was:
"An item that is small in absolute magnitude may be important if would change someones conclusions about the financial state of the company"

71) If tax-exempt yields are 3% and taxable are 4%(2.5% after tax), company maximizes its portfolio - but then next year expects a larger UW loss. How should it adjust its strategy? Why?
[A/G p.110]
Larger UW loss reduces RTI, so fewer tax preferences are needed for book income=70% RTI - so we should shift our portfolio towards more taxables, less tax-free.

[Jobu]

Mathseal - I agree with 84.5 for #69.

I have a minor nitpick for #66b: I believe that when calculating the company's development factor you use the prior 9 AYs (not including the current year or prior years row), which gives me 6909/6580, which equals a nice, round 1.05. Doing the rest of the problem the same as others have I end up with 13.9% (14.0% if you round to 2 places)

[mathseal]

I got 66b wrong, because i applied the comp/industry factor to (1+the Industry Worst)*, but I do know the correct answer.

I agree with the 6909/6580, so maybe the issue is just rounding?

Following the calculation on RBC p330-332:
. .................................. Float ........ Round to 3
Company Avg Adverse.. = 1.050000
Company/Industry.........= 0.985915 or 0.986
Company Specific Factor = 0.207042 or 0.207 = (Comp/Industry)*Industry Worst
"Company RBC %" ....... = 0.208521 or 0.209 = (Company Specific + Industry Worst) /2

Final RBC ..................... = 13.8427% or 13.9% = (1+Company RBC)* Discount - 1


Feldblum Rounds to 3 places, but either way should be OK.
The RBC paper actually says you're NOT supposed to round (until the final $ charge), but it only says that in the fifth paragraph of section 11, which isn't covered anymore!
==========================

* Can anyone think of a good reason why it ISN'T applied to 1+the industry worst? This isn't a challenge for the exam (since RBC is what it is, just like Q#63a - schedule F part 4 is what it is - even if it's useless :shake2: ).

Let's say the industry is adequately reserved on the whole (industry avg adverse=1.00 or 0% development), but individual years fluctuate 20%. (Worst case = 1.2 -> 20% Industry RBC charge)

But Weak Insurer has an avg development of 2, because they post reserves very slowly. Conceptually, I would think the RBC would want to give a penalty of 100%+20%=120%, but instead it gives 2*20%=40% (ignoring credibility & discount).

I know the RBC formula specifically avoids using formula based reserve indications. And also that there's some mismatches (industry avg development comes from previous year, and worst case is based on reserve, but avg is based on incurred). But then what's the point of the company adjustment anyway? :-?

[frummie]

That 5.25 point question was rediculous.

With that many questions on the exam and that little time to complete them, there is no time to think. And if that's what they want you to do, then they need to give you more time. Absolutely ridiculous.

A total bullsh1t test.

On the 5.25 point question (#58), I got 0-24% for raw score (0-1.25 points), and >175% for raw/mean. So the average was maybe .75? I agree, ridiculous, unless you have all day to think about it, then one might be able to answer it.

[GefilteFish144]

All I know is I'm 1 for 1. On Part 7 that is. Moontraal here i come. bbeer, here' ive been. i'm sotally tober.

Interesting thing about DS's complaint is that he passed that "BS" test. Funny how the masses scored on that tax question -- the examiners have real egg on their face on that one. Kind of reminds me of the tax problem on last year's Exam 7, when I got 25-49% and still "above average". Of course that was a more reasonable tax question, but it was still a long problem at the end of the exam, so in that case the problem was more in terms of the length of the exam as opposed to the complexity of the problem.

And I don't care how long you give anyone to solve that, it's just not going to happen. Not even in an open-book exam....

[Dooby Scoo]

All I know is I'm 1 for 1. On Part 7 that is. Moontraal here i come. bbeer, here' ive been. i'm sotally tober.

Interesting thing about DS's complaint is that he passed that "BS" test.

My comment still stands about it being a BS exam. frummie's stats go to show you that the problem in question was worth diddly poo. It wasn't very representative of what an exam of this material should test you on. Nor is the material presented in a manner that's current nor easy to follow. It just so happens that the reasonable questions I answered are the ones that put me over the top. The rest, still :swear: