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Long-Term Actuarial Math Old Exam MLC Forum

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  #1  
Old 05-18-2018, 01:40 AM
Yufeng Yufeng is offline
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Default Guo's solution to Spring 2018 MLC WA Q1-Q6

http://deeperunderstandingfastercalc...2018MLC_WA.pdf

Overall, spring 2018 WA section difficulty level seems to be on par with fall 2017. Subjects tested this year are all mainstream concepts. To everyone's relief, there are no overly complex pension problems; there are no matrix problems.

However, scoring high in the WA isn't easy. Q4, Q5, and Q6 are not impossible but still challenging.

Please email me to report any errors or typos. Thanks for reading.
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  #2  
Old 05-18-2018, 04:46 PM
am62 am62 is offline
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Do you have a guess on the pass mark?
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  #3  
Old 05-18-2018, 11:21 PM
NchooseK NchooseK is offline
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Much obliged, Mr. Guo. What wonderful community service!
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Old 05-19-2018, 05:23 AM
NchooseK NchooseK is offline
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Mr. Guo, do mind taking a second look at WA Q1 part (d)?

I believe you may have accidentally used \mu^{12}=0.2, when it should be mu^{12}=0.1. I could be wrong, of course.

My answer was e^{-1}+0.109422996=0.477302437

Thank you.
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  #5  
Old 05-19-2018, 08:09 AM
Yufeng Yufeng is offline
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Default Q5 Part (c) (d) -- why risk is non diversifiable

Thanks NchooseK. You are right about WA Q1 Part (d). I used a wrong transition intensity. The final answer should be 0.4773 as you calculated.

Here's a more important question. I didn't solve WA Q5 Part (c) and (d) because I donít understand why introducing a new health-improving drug creates non-diversifiable risks. Hereís my reasoning.

Suppose I run my own life insurance company and that all my risks are diversifiable. Now some leading scientists in Company XYZ developed a new drug. If the new drug works, then everyone who bought an insurance policy from me and other insurers is guaranteed to have lower mortality. If the new drug doesnít work, my policyholders will have the exact same old mortality as before.

What are my risks if the new drug works and everyone has lower mortality? Perhaps my premiums are too high and there will be a lots of lapses and surrenders. That doesnít matter because (1) high lapses and surrenders will happen to other insurers, and (2) I can develop new insurance policies using new lower mortality rates. My new policies will have lower premiums.

What are my risks if the drug doesnít work? Nothing. I keep running my business the old way.

Regardless of whether the new drug works or not, I'm covered.

Can anyone take a look at this? Am I so blind to detect the major threat posed by the new drug?
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Old 05-19-2018, 11:20 AM
Yufeng Yufeng is offline
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I thought more about Q5. The new drug will be a huge threat if I'm selling annuities. Now everyone lives longer if the new drug succeeds and my annuity business is going to bleed.

However, Q5 is about life insurance policies. I don't see any risk on the horizon if mortality improvement is uncertain. As long as mortality doesn't get worse, my life insurance business will be sound because my premiums were based on conservative assumptions.

I might call this new drug manna from heaven if it succeeds.
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