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 Long-Term Actuarial Math Old Exam MLC Forum

#1
04-17-2018, 04:00 PM
 NchooseK Member SOA Join Date: Nov 2012 Location: Philly area Studying for PA, LTAM, FA (FAP) College: Swarthmore College (BA Mathematics), Villanova University (MS Applied Stat) Favorite beer: I don't drink beer, but I love the Dos Equis commercials. Posts: 287
MLC Conceptual Questions: create, share, discuss, answer!

The conceptual questions, located at the end of seemingly every WA problem, are tough. Let's do some together before test day!

I'll start.

Discuss how or why a gross premium reserve is calculated prospectively, while an asset share is calculated retrospectively.

Bonus: When/how does the asset share equal the gross premium reserve? Is this likely?
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Last edited by NchooseK; 04-17-2018 at 04:11 PM..
#2
04-17-2018, 05:03 PM
 Adapt and Chill Member SOA AAA Join Date: Sep 2017 College: Davidson College Posts: 151

Quote:
 Originally Posted by NchooseK The conceptual questions, located at the end of seemingly every WA problem, are tough. Let's do some together before test day! I'll start. Discuss how or why a gross premium reserve is calculated prospectively, while an asset share is calculated retrospectively. Bonus: When/how does the asset share equal the gross premium reserve? Is this likely?
An asset share might be thought of as the actual amount that is generated by the policy, while a gross premium reserve is the amount that needs to be set aside to pay off future benefits and expenses.

Then, the gross premium reserve is calculated prospectively because it's what you expect to incur in the future, while the asset share is calculated retrospectively because it's based on the actual cash flow.

Bonus: The asset share will equal the gross premium reserve if the reserve assumptions match the actual expenses and interest rates experienced. This is possible, but unlikely.

My question: For a policy alteration, what are some reasons that a time t CV (surrender value, or cash value) is usually a fixed value, or a fraction of the reserve V at time t?
#3
04-17-2018, 10:37 PM
 NchooseK Member SOA Join Date: Nov 2012 Location: Philly area Studying for PA, LTAM, FA (FAP) College: Swarthmore College (BA Mathematics), Villanova University (MS Applied Stat) Favorite beer: I don't drink beer, but I love the Dos Equis commercials. Posts: 287

Nice, work Adapt and Chill! Your question had me do some research, which is an awesome consequence. Thank you! My answer is similarly in white.

Your question was: For a policy alteration, what are some reasons that a time t CV (surrender value, or cash value) is usually a fixed value, or a fraction of the reserve V at time t?

When a policyholder surrenders, his insurer distributes a CV benefit and takes responsibility for associated expenses. Fixing the cost of the CV to a more modest value will compensate for some of the expense costs.

Insurers also want their policyholders playing for a "common goal" and staying in the "same direction." In other words, one who surrenders should not experience a vastly different monetary fate than a long-time policy-holder. In fact, the the long-time policy holders are ideally rewarded most, but others involved also share some of the success. Hence the fractional CV, which would partially reward a former client, just not as much as the client who persisted with (contributed most to) the program.

Anti-selection: Someone shouldn't be able to screw the insurer and his policyholders to any meaningful extent because he or she is acting on exclusive knowledge. You can't perfectly stop this, but minimizing (and proportionality) surrender benefits is a good practice.
__________________
Exams: P | FM | C | MFE | LTAM | SRM Credit | PA

VEE: Statistics | Finance | Economics

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Conferences: APC

Last edited by NchooseK; 04-17-2018 at 10:41 PM..
#4
04-18-2018, 12:32 PM
 Squeenasaurus Member SOA Join Date: Jul 2016 College: Illinois State University Favorite beer: Lagunitas Posts: 149

I'm enjoying this thread. Keep 'em coming. I have one that I kind of stole from a CA WA:
Consider a fully discrete whole life insurance policy. Under the New Jersey reserve method, a full preliminary premium is used in year 1, net level premiums are used in years 21 and on, and level premiums are used in years 2 through 20. Rank the time 10 reserves in order from lowest to highest under the following methods: full preliminary term reserve method, NJ reserve method, and unmodified net premium reserve method.
#5
04-19-2018, 01:46 PM
 SirActSci Member CAS SOA Non-Actuary Join Date: Dec 2015 Posts: 94

Consider this:
On July 15, 2017, XYZ Corp buys fully discrete whole life insurance policies of 1,000 on
each of its 10,000 workers, all age 35. It uses the death benefits to partially pay the

Please validate this practicality of the bold statement: Some companies dont payout death benefts during the first year. The expected death benefits (payable at end of year) is used to offset premiums that would have been paid for that year.
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#6
04-19-2018, 01:50 PM
 SirActSci Member CAS SOA Non-Actuary Join Date: Dec 2015 Posts: 94

Quote:
 Originally Posted by Squeenasaurus I'm enjoying this thread. Keep 'em coming. I have one that I kind of stole from a CA WA: Consider a fully discrete whole life insurance policy. Under the New Jersey reserve method, a full preliminary premium is used in year 1, net level premiums are used in years 21 and on, and level premiums are used in years 2 through 20. Rank the time 10 reserves in order from lowest to highest under the following methods: full preliminary term reserve method, NJ reserve method, and unmodified net premium reserve method.
Would it be unmodified net premium reserve method<NJ reserve method<full preliminary term reserve method?
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#7
04-19-2018, 02:33 PM
 SirActSci Member CAS SOA Non-Actuary Join Date: Dec 2015 Posts: 94

OR

Bonus
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#8
04-20-2018, 04:01 PM
 Abraham Weishaus Member SOA AAA Join Date: Oct 2001 Posts: 7,216

Quote:
 Originally Posted by SirActSci Would it be unmodified net premium reserve method
NJ should be higher than FPT since it has to catch up to net premium reserves faster.
#9
04-21-2018, 01:14 AM
 SirActSci Member CAS SOA Non-Actuary Join Date: Dec 2015 Posts: 94

For Spring 2017 question 4, is the understanding that costs (paid at middle of year) are paid for a year of insurance depending on the state at the beginning of the year?
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#10
04-21-2018, 12:59 PM
 Squeenasaurus Member SOA Join Date: Jul 2016 College: Illinois State University Favorite beer: Lagunitas Posts: 149

Quote:
 Originally Posted by Abraham Weishaus NJ should be higher than FPT since it has to catch up to net premium reserves faster.
Abe has a good graph on coaching actuaries that shows this if you're more of a visual learner.