C1 Flashcards

Question 1

Q

1

MCT 1: OVERVIEW & GEN REQ

(1.1) intro:Define ‘target capital required’ (give the statistical defn)

Answer

A

1

MCT 1: OVERVIEW & GEN REQ

(1. 1) intro:Define ‘target capital required’ (give the statistical defn)
* Capital level corresponding to CTE(99%) on the loss distribution over 1-yr time horizon (CTE = Conditional Tail Expectation)

Question 2

Q

2

MCT 1: OVERVIEW & GEN REQ

(1.1) intro:Are insurers required to meet capital requirements at all times

Answer

A

2

MCT 1: OVERVIEW & GEN REQ

(1. 1) intro:Are insurers required to meet capital requirements at all times
* YES!

Question 3

Q

3

MCT 1: OVERVIEW & GEN REQ

(1.1) intro:Describe scope of consolidation for MCT

Answer

A

3

MCT 1: OVERVIEW & GEN REQ

(1.1) intro:Describe scope of consolidation for MCT

MCT ratio is calculated on consolidated basis
- Includes: any subsidiary parent could operate directly (Ex: other P&C insurer)
- Excludes: life insurers

Question 4

Q

4

MCT 1: OVERVIEW & GEN REQ

(1.1) intro:What is an easy proxy for CapAv (Capital Available) that appears on the B/S (Balance Sheet)

Answer

A

4

MCT 1: OVERVIEW & GEN REQ

(1. 1) intro:What is an easy proxy for CapAv (Capital Available) that appears on the B/S (Balance Sheet)
1. B/S equity

Question 5

Q

5

MCT 1: OVERVIEW & GEN REQ

Qz-1 defns:Define insurance risk

risk of loss..clms..

Answer

A

5

MCT 1: OVERVIEW & GEN REQ

Qz-1 defns:Define insurance risk

risk of loss..clms..

Risk of loss FROM the potential for claims (from policyholders & beneficiaries)

Question 6

Q

6

MCT 1: OVERVIEW & GEN REQ

Qz-1 defns:Define market risk

risk of loss..chgs..

Answer

A

6

MCT 1: OVERVIEW & GEN REQ

Qz-1 defns:Define market risk

risk of loss..chgs..

Risk of loss FROM changes in prices in various markets

Question 7

Q

7

MCT 1: OVERVIEW & GEN REQ

Qz-1 defns:Define credit risk

risk of loss..counter-parties..

Answer

A

7

MCT 1: OVERVIEW & GEN REQ

Qz-1 defns:Define credit risk

risk of loss..counter-parties..

Risk of loss FROM counterparty’s potential INABILITY or UNWILLINGNESS to fully meet contractual obligations due to the insurer

Question 8

Q

8
E (2016.Fall 18a.) 0.500 pts

MCT 1: OVERVIEW & GEN REQ

Qz-1 defns:Define operational risk

risk of loss..processes..

Answer

A

8
E (2016.Fall 18a.) 0.500 pts

MCT 1: OVERVIEW & GEN REQ

Qz-1 defns:Define operational risk

risk of loss..processes..

Risk of loss FROM inadequate or failed internal processes, people, systems or from external events

Question 9

Q

10
E (2015.Fall 19.) 2.000 pts

MCT 2: CAPITAL AVAILABLE

Qz-2 (2.1) CapAv:4 considerations in defining MCT CapAv (Capital Available)

MCT-APAS

Answer

A

10
E (2015.Fall 19.) 2.000 pts

MCT 2: CAPITAL AVAILABLE

Qz-2 (2.1) CapAv:4 considerations in defining MCT CapAv (Capital Available)

MCT-APAS

AVAILABILITY: is the capital element (fully paid) and (available to absorb losses)
PERMANENCE: until when is a capital element available
ABSENCE: ask whether a capital element has an absence of (encumbrances) & (mandatory servicing costs)
SUBORDINATION: is the capital element (subordinated to rights of policy holders and creditors) in (an insolvency or winding-up)

Question 10

Q

11

MCT 2: CAPITAL AVAILABLE

(2.1) CapAv:What are the 3 broad components of capital available (3)

Answer

A

11

MCT 2: CAPITAL AVAILABLE

(2.1) CapAv:What are the 3 broad components of capital available (3)

Category A (common equity)
Category B
Category C

Question 11

Q

12

MCT 2: CAPITAL AVAILABLE

(2.2) CapCompLims:When is excess category B & C capital included in capital available (2)

Answer

A

12

MCT 2: CAPITAL AVAILABLE

(2.2) CapCompLims:When is excess category B & C capital included in capital available (2)

(w/ OSFI approval) & (plan to return to compliance ASAP)
Must be due to event(s) beyond insurer’s control

Question 12

Q

16
E (2017.Spring 24b.i) 0.500 pts

MCT 2: CAPITAL AVAILABLE

Qz-2 supp:Describe impact of unregistered reinsurance on MCT capital available

Answer

A

16
E (2017.Spring 24b.i) 0.500 pts

MCT 2: CAPITAL AVAILABLE

Qz-2 supp:Describe impact of unregistered reinsurance on MCT capital available

If unregistered reinsurance goes UP then CapAv goes DOWN
Reduction = max(0, D) WHERE D = (UEP + O/S + ReIns Recv) - (ReIns Pay + NOD + LOC) SUMMED over all reinsurers separately

Question 13

Q

17

MCT 4: CAPITAL REQUIRED: INSURANCE RISK

Qz-3 (4.2) margins:On what basis should claims and premium be put before calculating capital required for insurance risk

Answer

A

17

MCT 4: CAPITAL REQUIRED: INSURANCE RISK

Qz-3 (4.2) margins:On what basis should claims and premium be put before calculating capital required for insurance risk

The data should be NET of (reinsurance, salv/sub, SIRs) and EXCLUDE (PfADs)

Question 14

Q

18

MCT 4: CAPITAL REQUIRED: INSURANCE RISK

Qz-3 (4.3) ReIns:What is the $-limit on LOC (Letters of Credit) for obtaining capital credit against unregistered reinsurance

Answer

A

18

MCT 4: CAPITAL REQUIRED: INSURANCE RISK

Qz-3 (4.3) ReIns:What is the $-limit on LOC (Letters of Credit) for obtaining capital credit against unregistered reinsurance

LOC limit = 30% x (UEP ceded + O/S recoverable)

Question 15

Q

25

MCT 4: CAPITAL REQUIRED: INSURANCE RISK

Qz-3 (4.5) Cats:Define ‘earthquake premium reserve’ (EPR)

Answer

A

25

MCT 4: CAPITAL REQUIRED: INSURANCE RISK

Qz-3 (4.5) Cats:Define ‘earthquake premium reserve’ (EPR)

Voluntary accumulation of earthquake premiums (must not exceed PML500)

Question 16

Q

26

MCT 4: CAPITAL REQUIRED: INSURANCE RISK

Qz-3 (4.5) Cats:If earthquake premium is implicit in total premium, what must the insurer demonstrate

reasonableness of allocation..

Answer

A

26

MCT 4: CAPITAL REQUIRED: INSURANCE RISK

Qz-3 (4.5) Cats:If earthquake premium is implicit in total premium, what must the insurer demonstrate

reasonableness of allocation..

Demonstrate reasonableness of premium allocation to earthquake coverage

Question 17

Q

27

MCT 4: CAPITAL REQUIRED: INSURANCE RISK

Qz-3 (4.5) Cats:When can EPR be reduced (2)

Answer

A

27

MCT 4: CAPITAL REQUIRED: INSURANCE RISK

Qz-3 (4.5) Cats:When can EPR be reduced (2)

When there is material decrease in eqk-X
To establish a (claims, LAE) provision post-event

Question 18

Q

28

MCT 4: CAPITAL REQUIRED: INSURANCE RISK

Qz-3 (4.5) Cats:Is EPR included in reserve amounts on B/S

Answer

A

28

MCT 4: CAPITAL REQUIRED: INSURANCE RISK

Qz-3 (4.5) Cats:Is EPR included in reserve amounts on B/S

Yes

Question 19

Q

29

MCT 4: CAPITAL REQUIRED: INSURANCE RISK

(4.5) Cats:What is the formula for MCT capital required for nuclear reserves

Answer

A

29

MCT 4: CAPITAL REQUIRED: INSURANCE RISK

(4. 5) Cats:What is the formula for MCT capital required for nuclear reserves
* Nuclear reserve = NWP x 1.25 (may reverse after 20 years UNLESS there is credible data not to do so)

Question 20

Q

30
E (2019.Spring 18b.) 1.000 pts

MCT 4: CAPITAL REQUIRED: INSURANCE RISK

Qz-3 (4.5) Cats:Explain the impact on MCT components of a decrease in ER (Earthquake Reserves)

Answer

A

30
E (2019.Spring 18b.) 1.000 pts

MCT 4: CAPITAL REQUIRED: INSURANCE RISK

Qz-3 (4.5) Cats:Explain the impact on MCT components of a decrease in ER (Earthquake Reserves)

Need only 4 items for 1.0 pts:

Capital available doesn’t change
Capital required for insurance risk decreases
Capital required for market risk doesn’t change
Capital required for credit risk depends on use of unregistered reinsurance for earthquakes
Capital required for operational risk decreases (because insurance risk decreases)

Question 21

Q

31
E (2018.Fall 26d.) 0.250 pts

MCT 4: CAPITAL REQUIRED: INSURANCE RISK

Qz-3 (4.5) Cats:True or false: MCT takes into account flood risk

Answer

A

31
E (2018.Fall 26d.) 0.250 pts

MCT 4: CAPITAL REQUIRED: INSURANCE RISK

Qz-3 (4.5) Cats:True or false: MCT takes into account flood risk

It could be both true & false:
1. Flood risk would be part of general insurance risk (if it were sold)
2. But flood is not currently given special consideration like earthquake

Question 22

Q

34

MCT 6:CAPITAL REQUIRED: CREDIT RISK

Qz-5 (6.2) Off B/S Items:What are some examples of off-B/S sheet exposures (4)

Answer

A

34

MCT 6:CAPITAL REQUIRED: CREDIT RISK

Qz-5 (6.2) Off B/S Items:What are some examples of off-B/S sheet exposures (4)

Structured settlements
NOD (Non-Owned Deposits)
LOC (Letters of Credit)
Derivatives

Question 23

Q

35

MCT 6:CAPITAL REQUIRED: CREDIT RISK

(6.2) Off B/S Items:General method for CapReq(off-B/S): + problem

CRX x RF

Answer

A

35

MCT 6:CAPITAL REQUIRED: CREDIT RISK

(6.2) Off B/S Items:General method for CapReq(off-B/S): + problem

CRX x RF

CapReq = (CrdRsk exposure x RskFctr) | Problem: face amount of off-B/S exposure (may not reflect) true CrdRsk exposure

Question 24

Q

36

MCT 7:CAPITAL REQUIRED: OPERATIONAL RISK

Qz-6 general:Is legal risk included in operationl risk? (yes/no)

Answer

A

36

MCT 7:CAPITAL REQUIRED: OPERATIONAL RISK

Qz-6 general:Is legal risk included in operationl risk? (yes/no)

Yes, legal risk is included as part of operational risk

Question 25

Q

37

MCT 7:CAPITAL REQUIRED: OPERATIONAL RISK

Qz-6 general:List 2 types of risk that are EXCLUDED from MCT operational risk (2)

Answer

A

37

MCT 7:CAPITAL REQUIRED: OPERATIONAL RISK

Qz-6 general:List 2 types of risk that are EXCLUDED from MCT operational risk (2)

Strategic risk
Reputation risk

Question 26

Q

38

MCT 7:CAPITAL REQUIRED: OPERATIONAL RISK

Qz-6 general:What is the purpose of the cap on operational risk of 30% x CR(0), where CR(0) = Sum (ins, mkt, crd) risk

Answer

A

38

MCT 7:CAPITAL REQUIRED: OPERATIONAL RISK

Qz-6 general:What is the purpose of the cap on operational risk of 30% x CR(0), where CR(0) = Sum (ins, mkt, crd) risk

To dampen operational risk for high-volume, low-complexity businesses that have high levels of reinsurance

Question 27

Q

39

MCT 7:CAPITAL REQUIRED: OPERATIONAL RISK

Qz-6 general:What is rapid premium growth linked to (3)

Answer

A

39

MCT 7:CAPITAL REQUIRED: OPERATIONAL RISK

Qz-6 general:What is rapid premium growth linked to (3)

Mergers
New LOBs
Changes to products or U/W criteria

Question 28

Q

40
E (2017.Spring 24b.iii) 0.500 pts

MCT 7:CAPITAL REQUIRED: OPERATIONAL RISK

Qz-6 supp:Impact of unregistered reinsurance on MCT OpnRsk

Answer

A

40
E (2017.Spring 24b.iii) 0.500 pts

MCT 7:CAPITAL REQUIRED: OPERATIONAL RISK

Qz-6 supp:Impact of unregistered reinsurance on MCT OpnRsk

When unregistered reinsurance goes UP –> CapReq(OpnRsk) goes UP
- OpnRsk DEPENDS on InsRsk & CrdRsk
- InsRsk goes UP because unregistered reinsurance is one of its components

Question 29

Q

42
E (2016.Fall 18c.) 0.500 pts

MCT 8: DIVERSIFICATION CREDIT

Qz-7 (8.1) DivsCrd:Define ‘diversification credit’

Answer

A

42
E (2016.Fall 18c.) 0.500 pts

MCT 8: DIVERSIFICATION CREDIT

Qz-7 (8.1) DivsCrd:Define ‘diversification credit’

A reduction to capital required RECOGNIZING that not all risk categories are likely to suffer maximum loss simultaneously

Question 30

Q

43
E (2018.Fall 26b.) 0.250 pts

MCT 8: DIVERSIFICATION CREDIT

Qz-7 (8.1) DivsCrd:Does the diversification credit consider correlation between & within all risk components

Answer

A

43
E (2018.Fall 26b.) 0.250 pts

MCT 8: DIVERSIFICATION CREDIT

Qz-7 (8.1) DivsCrd:Does the diversification credit consider correlation between & within all risk components

No:
1. Credit & market risk are summed to get asset risk
2. Then the diversification credit considers the correlation between asset & insurance risk

Question 31

Q

55
E (2017.Spring 19b.) 0.500 pts

MCT SUPP: OTHER EXAM PROBLEMS

supp:Describe a non-modeled approach to calculating eqk reserves

Answer

A

55
E (2017.Spring 19b.) 0.500 pts

MCT SUPP: OTHER EXAM PROBLEMS

supp:Describe a non-modeled approach to calculating eqk reserves

Use the ‘standard’ approach:
1. Calc ERX = [max(EastCan.PTIV, WestCan.PTIV) - deduc], where PTIV = Property Total Insured Value
2. THEN calc ER (Earthquake Reserve) the same way as in the modeled approach

Question 32

Q

56
E (2015.Fall 18a.) 0.500 pts

MCT SUPP: OTHER EXAM PROBLEMS

Qz-8 supp:Purpose of establishing a supervisory target MCT (3)

Answer

A

56
E (2015.Fall 18a.) 0.500 pts

MCT SUPP: OTHER EXAM PROBLEMS

Qz-8 supp:Purpose of establishing a supervisory target MCT (3)

Early warning for management
Threshold for OSFI intervention
Accounts for (all risks in MCT ratio) + (non-modeled risks, off-B/S risks) + MARGIN

Question 33

Q

69

CIA.MfAD 01-04: INTRODUCTION

Qz-1 intro:What is the purpose of MfADs (Margins for Adverse Deviations)

to reflect..

Answer

A

69

CIA.MfAD 01-04: INTRODUCTION

Qz-1 intro:What is the purpose of MfADs (Margins for Adverse Deviations)

to reflect..

To reflect a degree of uncertainty inherent in an actuarial best estimate

Question 34

Q

70

CIA.MfAD 01-04: INTRODUCTION

Qz-1 intro:What are some broad methods for calculating MfADs (2)

deterministic, stochastic

Answer

A

70

CIA.MfAD 01-04: INTRODUCTION

Qz-1 intro:What are some broad methods for calculating MfADs (2)

deterministic, stochastic

Deterministic: select percentages directly based on knowledge of the situation
Stochastic: use quantile methods based on a statistical analysis

Question 35

Q

71

CIA.MfAD 01-04: INTRODUCTION

Qz-1 defns:What is the technical defn of MfAD (Margin for Adverse Deviation)

difference between.. assumption..

Answer

A

71

CIA.MfAD 01-04: INTRODUCTION

Qz-1 defns:What is the technical defn of MfAD (Margin for Adverse Deviation)

difference between.. assumption..

Difference between (ASSUMPTION for actual calculation) and (ASSUMPTION for best estimate calculation)

Question 36

Q

72

CIA.MfAD 01-04: INTRODUCTION

Qz-1 defns:What is the technical defn of PfAD (Provision for Adverse Deviation)

difference between.. result..

Answer

A

72

CIA.MfAD 01-04: INTRODUCTION

Qz-1 defns:What is the technical defn of PfAD (Provision for Adverse Deviation)

difference between.. result..

Difference between (RESULT of actual calculation) and (RESULT of best estimate calculation)
- The best estimate might be the median of your loss distribution
- The actual calculation would be more conservative, maybe the 90th percentile, the difference being the PfAD amounts

Question 37

Q

73

CIA.MfAD 01-04: INTRODUCTION

Qz-1 defns:Categories of MfADs (3)

Answer

A

73

CIA.MfAD 01-04: INTRODUCTION

Qz-1 defns:Categories of MfADs (3)

Investment return rates
Development on claims
Recovery on losses ceded to reinsurer

Question 38

Q

74
E (2019.Spring 24b.) 1.000 pts

CIA.MfAD 01-04: INTRODUCTION

Qz-1 good RskMarg traits:According to IAIS, when should a risk margin generally be HIGHER/lower (4,1)

information, freq/sev, contract term, loss distribution

Answer

A

74
E (2019.Spring 24b.) 1.000 pts

CIA.MfAD 01-04: INTRODUCTION

Qz-1 good RskMarg traits:According to IAIS, when should a risk margin generally be HIGHER/lower (4,1)

information, freq/sev, contract term, loss distribution

Risk margin should be HIGHER:
1. When less is known about the estimate
2. For low frequency / high severity LOBs
3. For longer contract terms
4. When there is a wide probability distribution for the losses
Risk margin should be LOWER:
1. With emerging experience

Question 39

Q

76
E (2017.Fall 27error2.) 0.750 pts

CIA.MfAD 01-04: INTRODUCTION

calc:What is the formula for calculating PfAD for reinsurance ceded

Answer

A

76
E (2017.Fall 27error2.) 0.750 pts

CIA.MfAD 01-04: INTRODUCTION

calc: What is the formula for calculating PfAD for reinsurance ceded
* PfAD(re) = MfAD(re) x PV(ceded unpaid losses)

Question 40

Q

77
E (2019.Spring 24a.i,ii) 0.500 pts

CIA.MfAD 05: EXPLICIT ASSMPS - DETERMINISTIC MfADs

Qz-2 intro:Deterministic (lower, UPPER) % limits on MfADs (3)

Answer

A

77
E (2019.Spring 24a.i,ii) 0.500 pts

CIA.MfAD 05: EXPLICIT ASSMPS - DETERMINISTIC MfADs

Qz-2 intro:Deterministic (lower, UPPER) % limits on MfADs (3)

Investment return rate ( 25 bps , 200 bps )
Claims development ( 2.5% , 20% )
Reinsurance recovery ( 0% , 15% )

Question 41

Q

78
E (2016.Spring 29b.i) 0.500 pts

CIA.MfAD 05: EXPLICIT ASSMPS - DETERMINISTIC MfADs

Qz-2 MfAD(clms):Identify CATEGORIES of considerations for selecting MfAD(clms) (3)

ODL

Answer

A

78
E (2016.Spring 29b.i) 0.500 pts

CIA.MfAD 05: EXPLICIT ASSMPS - DETERMINISTIC MfADs

Qz-2 MfAD(clms):Identify CATEGORIES of considerations for selecting MfAD(clms) (3)

ODL

Operations (U/W, claims management, other)
Data (on which estimate is based)
LOB

Question 42

Q

79
E (2016.Spring 29b.i) 0.500 pts

CIA.MfAD 05: EXPLICIT ASSMPS - DETERMINISTIC MfADs

Qz-2 MfAD(clms):Identify OPERATIONAL considerations in selecting MfAD(clms) -> (when to pick HIGH/low)

low(SSC), high(op Changes, Turnover, Lack of Guidelines)

Answer

A

79
E (2016.Spring 29b.i) 0.500 pts

CIA.MfAD 05: EXPLICIT ASSMPS - DETERMINISTIC MfADs

Qz-2 MfAD(clms):Identify OPERATIONAL considerations in selecting MfAD(clms) -> (when to pick HIGH/low)

low(SSC), high(op Changes, Turnover, Lack of Guidelines)

Pick HIGH when there are (operational changes, employee turnover, Lack of Guidelines, inadequate staffing)
Pick LOW when operations are (Stable, Strong, Consistent)

Question 43

Q

80

CIA.MfAD 05: EXPLICIT ASSMPS - DETERMINISTIC MfADs

Qz-2 MfAD(clms):Identify DATA considerations in selecting MfAD(clms) -> (when to pick low)

low(SCH)

Answer

A

80

CIA.MfAD 05: EXPLICIT ASSMPS - DETERMINISTIC MfADs

Qz-2 MfAD(clms):Identify DATA considerations in selecting MfAD(clms) -> (when to pick low)

low(SCH)

Pick LOW when data is
1. Stable
2. Credible
3. Homogeneous

Question 44

Q

81

CIA.MfAD 05: EXPLICIT ASSMPS - DETERMINISTIC MfADs

Qz-2 MfAD(clms):Identify LOB considerations in selecting MfAD(clms) -> (when to pick low)

S

Answer

A

81

CIA.MfAD 05: EXPLICIT ASSMPS - DETERMINISTIC MfADs

Qz-2 MfAD(clms):Identify LOB considerations in selecting MfAD(clms) -> (when to pick low)

S

Pick LOW when LOBs are “stable”

Question 45

Q

82

CIA.MfAD 05: EXPLICIT ASSMPS - DETERMINISTIC MfADs

Qz-2 MfAD(clms):Reasons to select highest MfAD(clms) margin of 20% (3)

tort.new.(+retention)

Answer

A

82

CIA.MfAD 05: EXPLICIT ASSMPS - DETERMINISTIC MfADs

Qz-2 MfAD(clms):Reasons to select highest MfAD(clms) margin of 20% (3)

tort.new.(+retention)

For significant changes: (tort reform, legal challenges)
For a new LOB in new province with limited data
For an increase in retentions with limited data for assessing effect

Question 46

Q

83
E (2019.Spring 24a.iii) 0.250 pts

CIA.MfAD 05: EXPLICIT ASSMPS - DETERMINISTIC MfADs

Qz-2 MfAD(clms):Reasons to select MfAD(clms) higher than 20% (3)

cons3

Answer

A

83
E (2019.Spring 24a.iii) 0.250 pts

CIA.MfAD 05: EXPLICIT ASSMPS - DETERMINISTIC MfADs

Qz-2 MfAD(clms):Reasons to select MfAD(clms) higher than 20% (3)

cons3

If there is unusually high uncertainty
If PfAD is already very low because best estimate of claims liability is very low
If a stochastic analysis indicates variability not identified using a deterministic analysis

Question 47

Q

84

CIA.MfAD 05: EXPLICIT ASSMPS - DETERMINISTIC MfADs

Qz-2 MfAD(clms):Reasons to select lowest MfAD(clms) margin of 2.5% (3)

comm.StrucSett.stoploss

Answer

A

84

CIA.MfAD 05: EXPLICIT ASSMPS - DETERMINISTIC MfADs

Qz-2 MfAD(clms):Reasons to select lowest MfAD(clms) margin of 2.5% (3)

comm.StrucSett.stoploss

LOB commuted to reinsurer and is in runoff
LOB has pre-set payments (Ex: structured settlement)
Insurer has stop-loss coverage reserved at stop-loss limit

Question 48

Q

86
E (2016.Spring 29b.ii) 1.000 pts

CIA.MfAD 05: EXPLICIT ASSMPS - DETERMINISTIC MfADs

Qz-2 MfAD(re):Identify considerations in selecting of MfAD(re) (3)

LR.unreg.FinCond

Answer

A

86
E (2016.Spring 29b.ii) 1.000 pts

CIA.MfAD 05: EXPLICIT ASSMPS - DETERMINISTIC MfADs

Qz-2 MfAD(re):Identify considerations in selecting of MfAD(re) (3)

LR.unreg.FinCond

Consider ceded Loss Ratio (if high: pick MfAD high)
Consider proportion of unregistered reinsurance (if high: pick MfAD high)
Consider financial condition of reinsurer (if poor: pick MfAD high)

Question 49

Q

89
E (2017.Spring 25c.) 0.500 pts

CIA.MfAD 05: EXPLICIT ASSMPS - DETERMINISTIC MfADs

Qz-2 MfAD(inv):Identify considerations in selecting MfAD(inv) (3)

CFmch.P-Pat.AssRsk

Answer

A

89
E (2017.Spring 25c.) 0.500 pts

CIA.MfAD 05: EXPLICIT ASSMPS - DETERMINISTIC MfADs

Qz-2 MfAD(inv):Identify considerations in selecting MfAD(inv) (3)

CFmch.P-Pat.AssRsk

MATCHING of cash flows from assets & liabilities (if unmatched: pick MfAD high)
ERROR in estimating payment patterns (if uncertain: pick MfAD high)
ASSET risk (credit/default & liquidity) (if high risk: pick MfAD high)

Question 50

Q

90
E (2019.Spring 24a.iv) 0.250 pts

CIA.MfAD 05: EXPLICIT ASSMPS - DETERMINISTIC MfADs

Qz-2 MfAD(inv):When may MfAD(Inv) < 25 bps

Answer

A

90
E (2019.Spring 24a.iv) 0.250 pts

CIA.MfAD 05: EXPLICIT ASSMPS - DETERMINISTIC MfADs

Qz-2 MfAD(inv):When may MfAD(Inv) < 25 bps

When the best estimate of the discount rate (based on insurer’s assets) is already below 25 bps

Question 51

Q

92

CIA.MfAD 05: EXPLICIT ASSMPS - DETERMINISTIC MfADs

Qz-2 MfAD(inv):Formula-based deterministic approaches (2)

Answer

A

92

CIA.MfAD 05: EXPLICIT ASSMPS - DETERMINISTIC MfADs

Qz-2 MfAD(inv):Formula-based deterministic approaches (2)

Weighted formula
Explicit quantification

Question 52

Q

93

CIA.MfAD 05: EXPLICIT ASSMPS - DETERMINISTIC MfADs

MfAD(inv):Weighted formula method

Answer

A

93

CIA.MfAD 05: EXPLICIT ASSMPS - DETERMINISTIC MfADs

MfAD(inv):Weighted formula method

MfAD(inv) = iPM - iAM
iAM = min [iPM, iRFM x (1-k)]

Question 53

Q

97

CIA.MfAD 11: Documentation & Reporting

Qz-4 docs:What should be disclosed in MfAD docs

Answer

A

97

CIA.MfAD 11: Documentation & Reporting

Qz-4 docs:What should be disclosed in MfAD docs

For explicit assumptions: how margins were selected
For stochastic analysis: describe components modeled as random variables, with their distributions & parameters

Question 54

Q

98

CIA.MfAD 11: Documentation & Reporting

Qz-4 docs:Rule of thumb for level of detail to include in MfAD docs (i)

Answer

A

98

CIA.MfAD 11: Documentation & Reporting

Qz-4 docs:Rule of thumb for level of detail to include in MfAD docs (i)

Strike balance between (too little, too much)
Considering what (qualitative, quantitative) info best serves user’s (understanding, decision-making)

Question 55

Q

99

CIA.MfAD 11: Documentation & Reporting

Qz-4 docs:Rule of thumb for level of detail to include in MfAD docs (ii)

SIC

Answer

A

99

CIA.MfAD 11: Documentation & Reporting

Qz-4 docs:Rule of thumb for level of detail to include in MfAD docs (ii)

SIC

Sophistication of user
Importance of concept to user
Complexity of concept

NOTE: cross-reference with materiality paper

Question 56

Q

100
E (2018.Fall 26a.) 0.250 pts

CIA.MfAD SUPP:

Qz-5 supp:In general, would MfADs be the same for claim & premium liabilities

Answer

A

100
E (2018.Fall 26a.) 0.250 pts

CIA.MfAD SUPP:

Qz-5 supp:In general, would MfADs be the same for claim & premium liabilities

No, claim & premium liabilities have different risk profiles

Question 57

Q

104
E (2015.Fall 26b.) 0.250 pts

CIA.MfAD SUPP:

Qz-5 supp:What is the difference between PV & APV (Present Value & Actuarial Present Value)

Answer

A

104
E (2015.Fall 26b.) 0.250 pts

CIA.MfAD SUPP:

Qz-5 supp:What is the difference between PV & APV (Present Value & Actuarial Present Value)

PV: accounts only for the time value of money
APV: accounts for the time value of money AND includes a risk margin for (investment return, claims development, reinsurance recovery)

Question 58

Q

105
E (2016.Fall 24a.) 0.500 pts

CIA.MfAD SUPP:

Qz-5 supp:Is APV always smaller than the undiscounted liabilities

Answer

A

105
E (2016.Fall 24a.) 0.500 pts

CIA.MfAD SUPP:

Qz-5 supp:Is APV always smaller than the undiscounted liabilities

NO: it depends on the balance between the discount factor (which decreases APV) & the MfADs (which increase APV)

Question 59

Q

109
E (2015.Spring 19c.) 0.500 pts

CIA.MfAD SUPP:

supp:In general, what are possible choices for selection of ceded discount rate

Answer

A

109
E (2015.Spring 19c.) 0.500 pts

CIA.MfAD SUPP:

supp:In general, what are possible choices for selection of ceded discount rate

Risk-free rate
Rate used by reinsurer to discount the same liabilities

Question 60

Q

113
E (2014.Fall 21a.) 0.500 pts

CIA.MfAD SUPP:

supp:Identify some risks not explicit in calculation of policy liabilities or MCT capital required (5)

SRFI.ID

Answer

A

113
E (2014.Fall 21a.) 0.500 pts

CIA.MfAD SUPP:

supp:Identify some risks not explicit in calculation of policy liabilities or MCT capital required (5)

SRFI.ID

Strategic
Reputational
Fraud
Innovation
International development

NOTE: CAS answer seemed to include several ‘normal’ risks

Question 61

Q

129
E (2016.Spring 18b.) 0.500 pts

CCIR.ARINSTR: All

Qz-1 general:Define ‘non-deferrable commission’

commissions..relating/varying..hence

Answer

A

129
E (2016.Spring 18b.) 0.500 pts

CCIR.ARINSTR: All

Qz-1 general:Define ‘non-deferrable commission’

commissions. .relating/varying..hence
* Commissions not exclusively RELATING TO and VARYING with the acquisition of premium HENCE not recoverable over the term of the unexpired policy

Question 62

Q

130
E (2013.Fall 21b.) 0.250 pts

CCIR.ARINSTR: All

Qz-1 general:Ways of accounting for time value of money in calculating excess (deficiency) ratio

Answer

A

130
E (2013.Fall 21b.) 0.250 pts

CCIR.ARINSTR: All

Qz-1 general:Ways of accounting for time value of money in calculating excess (deficiency) ratio

Explicitly calculate investment income and add to excess amount
Discount the undiscounted amounts (back to the SAME POINT IN TIME) to reverse effects of discounting

Question 63

Q

131
E (2013.Fall 23a.) 0.750 pts

MSA.RATIOS: All

Qz-3 intro:Give examples of company characteristics not captured in MSA ratios (4)

Answer

A

131
E (2013.Fall 23a.) 0.750 pts

MSA.RATIOS: All

Qz-3 intro:Give examples of company characteristics not captured in MSA ratios (4)

Subjective analysis of market position
Quality of management
Quality of reinsurance
Prospects for growth & innovation

Question 64

Q

132
E (2013.Fall 23c.) 0.500 pts

MSA.RATIOS: All

Qz-3 intuition:What does diversification score measure

Answer

A

132
E (2013.Fall 23c.) 0.500 pts

MSA.RATIOS: All

Qz-3 intuition:What does diversification score measure

Measures how closely the insurer tracks the overall Canadian market (in terms of geographic & LOB spread)
If diversification score > 65 –> company is highly diversified

Answer 65

A

133

MSA.RATIOS: All

Qz-3 intuition:Give examples of an insurer with a low/high diversification score

Low: niche insurers
High: national, multi-line writers

Answer 66

A

156
E (2015.Spring 26c.) 0.500 pts

MSA.RATIOS: All

Qz-3 calc:Compare the MSA ratios: ROE ROR

Just give formulas & intuition:
1. ROE: return to SHs per unit of capital
2. ROR: income relative to revenue-generating capacity

Answer 67

A

162
E (2018.Spring 12a.iii) 0.250 pts

FA.DUTIL: ALL

Qz-1 intro:Objective of FA (Facility Association)

ensure..for..unable

ensure auto insurance availability
- For..
all owners & licensed drivers
- Who are..
unable to obtain coverage through the voluntary market

Answer 68

A

163
E (2018.Spring 12a.i) 0.000 pts

FA.DUTIL: ALL

Qz-1 intro:Description of FA (who created FA, etc..)

created by..non-profit..

Created by insurance industry
(unincorporated, non-profit) of (ALL auto insurers)

Answer 69

A

164
E (2018.Spring 12a.ii) 0.000 pts

FA.DUTIL: ALL

Qz-1 intro:Mission of FA

administer, enhance stability, minimize market share

Administer residual market mechanisms
Enhance MS (market stability) through RSPs
Minimize MS (market share), so consumers benefit from private mkt

Answer 70

A

165
E (2019.Spring 8a.) 0.750 pts

FA.DUTIL: ALL

Qz-1 org:Types of risk-sharing mechanisms administered by FA (3)

FARM (Facility Association Residual Market)
RSPs (Risk-Sharing Pools)
UAF (Uninsured Automobile Fund)

Answer 71

A

166
E (2017.Spring 7a.ii) 0.250 pts

FA.DUTIL: ALL

Qz-1 org:Key purpose of FARM

..minimize market share

Provide coverage for risks that cannot be placed privately (also, FARM seeks to minimize market share)

Answer 72

A

167
E (2017.Spring 7a.i) 0.250 pts

FA.DUTIL: ALL

Qz-1 org:Key purpose of RSP

market stability

Enhance market stability by allowing insurers to pool bad risks that have passed their own U/W criteria
- (premiums & losses are shared)

Answer 73

A

168

FA.DUTIL: ALL

Qz-1 org:Key purpose of UAF

..(no,inadeq)..

Provide compensation in cases of (no, inadequate) insurance

Answer 74

A

169
E (2019.Spring 8b.) 0.750 pts

FA.DUTIL: ALL

Qz-1 org:Where does FA operate its various mechanisms

FARM: everywhere except provinces with public auto (BC,MB,SK,QC)
RSP: (ON, AB, NS, NB), note that Quebec operates its own RSP, called PRR
UAF: Atlantic Provs

Answer 75

A

170

FA.DUTIL: ALL

Qz-1 org:FARM - what are servicing carriers

Member companies contracted by FA to issue/administer policies and adjust claims

Answer 76

A

171
E (2017.Fall 13a.) 1.500 pts

FA.DUTIL: ALL

Qz-2 org:(FARM, RSP) areas of operational differences (6)

RA(CC)(P.claims)

RA(CC)(P.claims): memory trick - read it as ‘RACK-P dot Claims’
1. R: rates
2. A: admission
3. C: customer knowledge
4. C: # customers placed
5. P: participation ratio
6. Claims: U/W & claims admin

Answer 77

A

172
E (2018.Spring 12b.i) 0.500 pts

FA.DUTIL: ALL

Qz-2 org:(FARM, RSP) operational differences regarding - rates

FARM: rates set by FA
RSP: uses rates of ceding company

Answer 78

A

173
E (2018.Spring 12b.ii) 0.500 pts

FA.DUTIL: ALL

Qz-2 org:(FARM, RSP) operational differences regarding - admission

FARM: only if agent/broker can’t place risk with voluntary company
RSP: use U/W rules of ceding company

Answer 79

A

174
E (2017.Spring 7b.iii) 0.500 pts

FA.DUTIL: ALL

Qz-2 org:(FARM, RSP) operational differences regarding - customer knowledge

FARM: yes
RSP: no

Answer 80

A

175
E (2014.Fall 13a.iv) 0.250 pts

FA.DUTIL: ALL

Qz-2 org:(FARM, RSP) operational differences regarding - # customers placed

FARM: can be unlimited
RSP: depends on province, usually a % of: (T.V.PPA.NF.TPL) direct car-yrs, that is, (total, voluntary, PPA, non-Fleet, TPL) direct WE

Answer 81

A

176
E (2016.Fall 10a.) 0.500 pts

FA.DUTIL: ALL

org:(FARM, RSP) operational differences regarding - participation ratio

FARM: established separately by (jurisdiction, class, AY)
RSP: (T.V.PPA.NF.TPL) direct EE (i.e. Total, Voluntary, PPA, Non-Fleet, Third Party Liability)

Answer 82

A

177
E (2017.Spring 7b.ii) 0.500 pts

FA.DUTIL: ALL

Qz-2 org:(FARM, RSP) operational differences regarding - clms admin & U/W

FARM: uses servicing carriers (or 3rd party)
RSP: ceding company handles it

Answer 83

A

178

FA.DUTIL: ALL

Qz-1 Board of Directors & Members:Functions of FA’s board of directors (4)

RATE CHANGES: approve rate changes & filings
EXPENSES: authorize expenses
STANDARDS: establish standards for servicing carriers & RSP users
COMMITTEES: appoint committees & subcommittees

Answer 84

A

179
E (2017.Spring 7c.) 1.000 pts

FA.DUTIL: ALL

Qz-1 FARM:5 classes of business for determing a member’s participation ratio

FARM:
1. (1) PPA (Non-Fleet, Non-Pool)
2. (2) all auto EXCLUDING (1) and RSPs
RSPs
1. (3) RSP in Ontario (except cat claim funds for ON accident benefits from insolvent insurer)
2. (4) RSPs in (AB, NB, NS)
UAF (Uninsured Automobile Fund):
1. (5) UM claims + the ON cat claim fund excluded from (3)

Answer 85

A

180
E (2018.Spring 12c.) 0.750 pts

FA.DUTIL: ALL

Qz-3 RSP:What are the minimum requirements for risk-sharing pool transfer eligibility (5)

PPA only
Insured can’t be eligible for FARM
Policy must satisfy statutory minimum coverage requirements
Insurer must follow proper classification & rating, and provide documentation
Insurer must use approved rates

Answer 86

A

181
E (2016.Fall 10c.i) 0.500 pts

FA.DUTIL: ALL

Qz-3 RSP:Describe how RSP operates regarding actual transfer of premium from insurer to pool

Transferred premium = premium charged NET OF premium payment service charges

Answer 87

A

182
E (2016.Fall 10c.ii) 0.500 pts

FA.DUTIL: ALL

Qz-3 RSP:Describe premium reimbursement from pool to insurer

Reimbursement = % of written premium (as an expense allowance)
Includes:
1. claims adjustment
2. LAE, acquisition
3. Operating expenses
Excludes: taxes, license, fees

Answer 88

A

183
E (2018.Spring 12d.i) 0.250 pts

FA.DUTIL: ALL

Qz-3 ON RSP:In Ontario, why is only 85% of each transferred risk covered

to maintain incentives

Insurer retains incentives to (manage claims well, use effective U/W, maintain adequate pricing)
Otherwise they could simply off-load bad consequences of poor management
Note that FARM transfers 100% of risk

Answer 89

A

184
E (2018.Spring 12d.ii) 0.250 pts

FA.DUTIL: ALL

Qz-3 ON RSP:In Ontario, why is there a limit of 5% of (voluntary, PPA, Non-Fleet exposures) that can be transferred to the pool

Same as b.i + prevents insurer from sending all new policies to pool for first yr, then cherry-picking renewals from pool in yr 2

Answer 90

A

185

FA.DUTIL: ALL

AB RSP:What are the 2 types of RSPs in Alberta

GRID:
- for risks subject to statutory maximum premium
Non-GRID:
- for any risks the insurer feels are under-priced (similar to the Ontario RSP)

Answer 91

A

186

FA.DUTIL: ALL

AB RSP:What is the difference between the Alberta GRID & non-GRID regarding pool transfer limits

GRID:
- no limit on # risks transferred
Non-GRID:
- limit = 4% x (Total, Voluntary, Non-Fleet, PPA) written car-yrs

Answer 92

A

187

FA.DUTIL: ALL

AB RSP:What is the reason for the difference in transfer limits between the Alberta GRID & non-GRID pools

GRID:
- because Alberta law requires insurer to accept risks for which they have no control over price
Non-GRID:
- because Alberta law has a take-all-comers rule

Answer 93

A

188
E (2018.Fall 10.) 1.500 pts

FA.DUTIL: ALL

Qz-3 ON vs AB:Identify differences between the ON and AB RSPs

Difference 1:
- ON has 1 RSP
- AB has 2 RSPs (GRID & non-GRID)
Difference 2:
- ON RSP covers 85% of ceded risk
- AB RSPs cover 100% of ceded risk
Difference 3:
- ON has a 5% limit on risks that can be ceded
- AB GRID has no limit (non-GRID has 4% limit)

Answer 94

A

189

FA.DUTIL: ALL

NB RSP:Describe the New Brunswick RSP (who it serves, condition for transfer, transfer limit)

Who it serves:
- New Brunswick risks with New Brunswick insurers
Transfer condition:
- Household must have at least 1 recently licensed driver with a good driving record
Limit
1. = 8% x (Total, Voluntary, Non-Fleet, PPA) direct written exposures

Answer 95

A

190

FA.DUTIL: ALL

NS RSP:Describe the Nova Scotia RSP (who it serves, condition for transfer, transfer limit)

Who it serves:
- Nova Scotia risks with Nova Scotia insurers
  - (inexperienced drivers)
- Transfer condition:
  - At least 1 household member is a driver with < 6 years experience with no accidents/convictions
- Limit
  - = no limit

Answer 96

A

191
E (2015.Fall 7d.) 0.500 pts

FA.DUTIL: ALL

Qz-3 misc:How is the RSP used to lower total LR (Loss Ratio)

Cede policies to RSP that have a higher LR than the RSP average
Then other companies will end up subsidizing the losses on these policies
ALSO: ceding the maximum amount lowers PR for RSP

Answer 97

A

192
E (2015.Spring 12.) 0.500 pts

FA.DUTIL: ALL

Qz-3 misc:Is it possible to sustain a RSP running a profit

No: members only cede worst (unprofitable) risks so over time time the pool would become unprofitable (not sustainable)

Answer 98

A

194
E (2014.Spring 9a.) 0.250 pts

FA.DUTIL: ALL

Qz-3 misc:How does a rate freeze (at inadequate rates) impact availability of coverage

Availability for that class is reduced - insurers would stop accepting risks because they are unprofitable

Answer 99

A

196
E (2013.Fall 7.) 1.000 pts

FA.DUTIL: ALL

Qz-3 misc:Justify ROE = 15% for high-risk business (vs regulator’s ROE of 10%) (2)

Higher risk justifies higher returns to compensate
Using lower ROE may cause insurer’s not offer product (reduces availability for consumer)

Answer 100

A

200
E (2016.Fall 27e.) 0.750 pts

CIA.PrLiabs 1: INTRODUCTION

Qz-1 defns:Identify components of the premium liabilities (or policy liabilities in connection to UPR) (4+2)

clms.re.main.ContComm

According to the definition in Section 1 of the source text:

Policy liabilities in connection with unearned premium (premium liabilities) are:
- liabilities for future events..
- relating to the APV on the unexpired portion of the policies in-force at the valuation date..
- consisting of:
  1. future claim & adjustment expense
  2. reinsurance costs (net only)
  3. maintenance costs
- But this definition is incomplete and should also include:
  1. contingent commissions
- The examiner’s report also accepted these other answers:
  1. PDR or DPAE
  2. premium adjustments for swing-rated or retro-rated policies

Answer 101

A

201
E (2014.Fall 25b.i) 0.250 pts

CIA.PrLiabs 1: INTRODUCTION

Qz-1 defns:Define ‘DPAE asset’ (Deferred Policy Acquistion Expense) & give examples of such costs (3)

portion..incurred..

An ASSET that is the portion of prepaid acquisition expenses related to the UNEXPIRED PORTION OF THE POLICY & incurred when the policy issued
Example:
1. commissions,
2. TLF (Taxes, Licenses, Fees),
3. advertising

Answer 102

A

202
E (2014.Fall 25b.ii) 0.250 pts

CIA.PrLiabs 1: INTRODUCTION

Qz-1 defns:What is the purpose of DPAE asset

recognizes..overPT

To RECOGNIZE prepaid expenses over policy term PROVIDED such costs are recoverable from equity in UPR
Matches premiums with expenses

Answer 103

A

203

CIA.PrLiabs 1: INTRODUCTION

Qz-1 defns:Define ‘UEComm’ (Unearned Reinsurance Commissions)

A LIABILITY arising from uneared commission on Reinsurance ceded FOR the unexpired portion of the ceded policy

Answer 104

A

204

CIA.PrLiabs 1: INTRODUCTION

Qz-1 defns:Define ‘PDR’ (Premium Deficiency Reserve)

A LIABILITY arising when (equity in the NET UPR) < 0

Answer 105

A

205
E (2018.Fall 26c.) 0.250 pts

CIA.PrLiabs 1: INTRODUCTION

Qz-1 defns:True or false: if there is a premium deficiency then DPAE must = 0

True:
- ==> one of PDR & DPAE is always 0
- ==> if PDR > 0 there is a premium deficiency hence no DPAE asset
- ==> if DPAE > 0 then unearned premium is sufficient to cover premium liabilities hence no PDR is required

Answer 106

A

207
E (2019.Spring 14d.) 0.500 pts

CIA.PrLiabs APPENDICES: CALCULATING DPAE/PDR

Qz-3 calc:Methods for estimating the loss ratio for premium liabilities (4)

RICE

RICE

Ratemaking analysis
Industry benchmarks
Claims liabilities loss ratio
Expert judgment
- (in other words, just ask Alice)

Answer 107

A

210
E (2019.Spring 14c.) 0.750 pts

CIA.PrLiabs APPENDICES: CALCULATING DPAE/PDR

Qz-4 calc:Explain the impact on ROE if DPAE is reduced

Recall:
1. ROE = (net income) / equity
Now:
1. If DPAE decreases then equity decreases
  - (because equity = assets - liabilities)
2. If equity decreases then ROE increases But
3. If DPAE decreases then more premium acquisition is recognized in the current period
4. If more premium acquisition is recognized then (net income) decreases
5. If (net income decreases) then ROE decreases
Conclusion:
1. Overall effect is uncertain

Answer 108

A

213
E (2013.Fall 20b.) 0.750 pts

CIA.PrLiabs APPENDICES: CALCULATING DPAE/PDR

calc:How can evaluating by LOB then summing give different values for ‘equity in the unearned premium’

Basically doing LOBs together means that DPAE for one LOB can offset PDR for another
Then just relate to given numbers

Answer 109

A

214
E (2017.Fall 9a.) 0.750 pts

IBC.FLOOD 1: Introduction

Qz-1 ExecSumm:Specific reasons for non-coverage of overland flooding (3)

adverse.under.maps

Adverse selection (if offered, would be too expensive)
Govt under-investment in risk (planning, mitigation)
Lack of effective flood hazard maps

Answer 110

A

215

IBC.FLOOD 1: Introduction

Qz-1 ExecSumm:Examples of government under-investment in flood management (4)

BAIL (me out!)

BUILDING codes (obsolete)
ASSET management (poor)
INFRASTRUCTURE (lack of)
LAND-use planning (inadequate)

Answer 111

A

216
E (2019.Spring 9c.) 2.000 pts

IBC.FLOOD 1: Introduction

Qz-1 ExecSumm:Preconditions for strong flood risk management culture (4)

maps.IA$

FLOOD MAPS: for planning & risk management
INFRASTRUCTURE: levies, sewers
AWARENESS: of [risk, risk mitigation, financial management] by policyholders
INCENTIVES: for Individual risk mitigation should be encouraged by limited govt compensation $s

Answer 112

A

217

IBC.FLOOD 1: Introduction

Qz-1 intro:Most common type of natural disaster in Canada

Overland flooding

Answer 113

A

218

IBC.FLOOD 1: Introduction

Qz-1 Fld FinMgmt (intro):Trends making financial management of floods difficult (5)

growth (popn,..), concentration, weather, building, under-investment

GROWTH (popn | density | asset values)
CONCENTRATED development in flood-prone areas
Severe WEATHER
Vulnerability due to obsolete BUILDING codes
UNDER investment

Answer 114

A

219

IBC.FLOOD 1: Introduction

Qz-1 Fld FinMgmt (Ins):Coverage availability

Residential:
- Overland flooding: no
- Sewer: yes, by endorsement
Auto, commercial:
- Overland flooding: yes

Answer 115

A

220
E (2016.Fall 8d.) 1.000 pts

IBC.FLOOD 1: Introduction

Qz-1 Fld FinMgmt (Ins):Why do insurers often cover uninsured floods (2)

Multi-peril causes from sewer (covered) & overland flooding (not covered)
- Difficult to separate so insurers just pay everything
Avoid reputational damage & political pressure

Answer 116

A

221

IBC.FLOOD 1: Introduction

Qz-1 Fld FinMgmt (Ins):Why is overland flooding not insurable (2)

insurability requires: RUU

Insurability requires (Randomness, Uncertainty, Uncorrelated risks)
Floods are (predictable, correlated) & large # of properties are affected at the same time

Answer 117

A

222
E (2019.Spring 9b.) 1.000 pts

IBC.FLOOD 2: Case Studies

Qz-2 variables:Categories for international flood management approaches (6 variables)

m(pur.pak.price)sGov

MODEL:
- Public or private
PURCHASE:
- Mandatory or voluntary
PACKAGING:
- Bundled or optional
PRICING:
- Set by government or risk-based pricing
SUBSIDIES:
- Provided by other policyholders or through taxes
GOVERNMENT ROLE:
- Insurer or enabler

Answer 118

A

223
E (2018.Spring 9a.) 1.000 pts

IBC.FLOOD 2: Case Studies

variables:Categories for international flood management approaches (6 variables)

m(pur.pak.price)sGov

MODEL:
- Public or private
PURCHASE:
- Mandatory or voluntary
PACKAGING:
- Bundled or optional
PRICING:
- Set by government or risk-based pricing
SUBSIDIES:
- Provided by other policyholders or through taxes
GOVERNMENT ROLE:
- Insurer or enabler

Answer 119

A

225

IBC.FLOOD 2: Case Studies

Qz-2 UK:Describe the U.K. flood insurance program with respect to the 6 variables

Private
Voluntary
Bundled with homeowner’s insurance
Uses risk-based-pricing
Cross-subsidized by policyholders
Government is an enabler through (risk mitigation, flood mapping, zoning)

UPTAKE = 95%

Answer 120

A

226

IBC.FLOOD 2: Case Studies

Qz-2 UK:U.K. flood insurance - purpose (3)

SA25

Sustainability
Maintain AA (affordability & availability)
25-yr transition to full private risk-based pricing

Answer 121

A

227

IBC.FLOOD 2: Case Studies

Qz-2 UK:U.K. flood insurance - how does it work (4)

target.exclude

Target only high-risk properties (identified through risk-mapping)
Excludes homes built after 2009 to discourage building in high-risk areas
(if insurer’s risk-based-price is > price ceiling) (charge ceiling & cede to flood reinsurance)
(if insurer’s risk-based-price is ≤ ceiling) insurer may retain risk

Answer 122

A

228

IBC.FLOOD 2: Case Studies

Qz-2 UK:U.K. flood insurance - how is affordability ensured

Price ceilings

Answer 123

A

229

IBC.FLOOD 2: Case Studies

Qz-2 UK:U.K. flood insurance - what is the role of Govt (3)

ceilings.FinRelief.inv

Set price ceilings
Financial relief for cats exceeding pool capacity
Infrastructure investment

Answer 124

A

230
E (2019.Spring 10b.ii) 0.750 pts

IBC.FLOOD 2: Case Studies

Qz-2 U.S.:Evaluate the U.S. National Flood Insurance Program using criteria for evaluating government programs

Is it insurance or welfare:
- it is insurance because people pay premiums and only covered losses are paid out
Is it necessary:
- yes, due to climate change and that private flood insurance is insufficient
Is it efficient:
- yes, costs are lower because there are no commissions or advertising costs

Answer 125

A

231

IBC.FLOOD 3: Best Practices

Qz-3 InsR Role:Why is having a flood insurance program better than Govt disaster relief

indemnifies, incentivizes

Insurance INDEMNIFIES whereas Govt provides basic relief only
Insurance INCENTIVIZES through risk-based pricing whereas Govt relief is taxpayer funded, so no individual incentive for risk-mitigation

Answer 126

A

232
E (2018.Fall 11b.) 1.000 pts

IBC.FLOOD 3: Best Practices

Qz-3 InsR Role:Cause & remedies for low uptake of flood insurance

CAUSE:
- Adverse selection
REMEDIES:
1. Make mandatory
2. Bundle with other products/perils
3. Taxpayers subsidies for high-risk insureds
Public/government admnistration

Answer 127

A

233
E (2019.Spring 9a.) 0.500 pts

IBC.FLOOD 3: Best Practices

Qz-3 InsR Role:Advantages of bundling flood insurance

Higher uptake
Reduces adverse selection (since not only high-risk insureds will purchase)
Promotes affordability (cross-subsidization of high-risk insureds by low-risk insureds)

Answer 128

A

234

IBC.FLOOD 3: Best Practices

Qz-3 InsR Role:State 1 advantage & 1 disadvantage of bundling flood insurance for low-risk policy holders

DISADVANTAGE: low-risk would subsidize high-risk
ADVANTAGE: weather trends mean previously low-risk areas may suffer a flood disaster, and bundling ensures low-risk areas are covered

Answer 129

A

235

IBC.FLOOD 3: Best Practices

Qz-3 InsR Role:Role of insurer in private flood insurance

UPEC

U/W: distinguish low & medium rsks from HIGH risks
PRICING: use risk-based pricing
EDUCATION: educate policyholders regardings risks, financial management, and mitigation
CLAIMS: pay covered losses in timely manner

Answer 130

A

236

IBC.FLOOD 3: Best Practices

Qz-3 Govt Role:Role of Govt in supporting private flood insurance (4)

MESA

MITIGATION: promote mitigation of risk (structural: infrastructure,…) & (non-structural: zoning,…)
EDUCATION: regarding awareness & management of flood risk
SUBSIDIES: provide subsidies to high-risk households where risk-based pricing is unaffordable
ASSESSMENT: of risk through accurate flood plain maps

Answer 131

A

237
E (2018.Fall 11a.i) 1.000 pts

IBC.FLOOD 3: Best Practices

Qz-3 Govt Role:Describe 2 advantages & 2 disadvantages of a public & mandatory flood insurance system

public & manadatory:
- Advantages:
  1. High participation
  2. Affordability (high participation spreads risk & lowers cost)
- Disadvantages:
  1. Government rates may not be actuarially sound
  2. Low risk subsudizes high risk (unfair)

Answer 132

A

238
E (2018.Fall 11a.ii) 1.000 pts

IBC.FLOOD 3: Best Practices

Qz-3 Govt Role:Describe 2 advantages & 2 disadvantages of a private & voluntary flood insurance system

private & voluntary:
- Advantages:
  1. Risk-based pricing means rate are actuarially sound
  2. Risk-based pricing incentivizes policyholder to mitigate risk (& receive reduced rates)
- Disadvantages:
  1. Adverse selection (only high-risk customers will purchase)
  2. Rates may be unaffordable (due to adverse selection)

Answer 133

A

239
E (2017.Fall 9c.) 0.500 pts

IBC.FLOOD 3: Best Practices

Qz-3 Govt Role:Why may Govt still need to supplement private flood insurance

Private insurance may have coverage limits that are exceeded in a major disaster (so Govt pays amount not covered)
Govt may subsidize otherwise uninsurable risks through taxation

Answer 134

A

240

IBC.FLOOD 3: Best Practices

Qz-3 CdnImpact:How can flood insurance unaffordability for high-risk customers be addressed (2)

bundle.sub

BUNDLING: bundle flood with standard homeowner’s policy (low-risk customers subsidize high-risk)
SUBSIDIES: Govt can provide subsidies through taxation

Answer 135

A

241

IBC.FLOOD 3: Best Practices

Qz-3 CdnImpact:How is Canada starting to address flood management issues

EAP – NDMP

2014 EAP (Economic Action Plan) proposes developing NDMP (National Disaster Mitigation Plan)

Answer 136

A

242

IBC.FLOOD 3: Best Practices

Qz-3 CdnImpact:NDMP objectives (general)

Proactive approach to disaster risk management
Reduce impact of natural catastrophes on Canadians

Answer 137

A

245
E (2016.Spring 11c.) 0.250 pts

IBC.FLOOD 3: Best Practices

Qz-3 calc:Identify policy conditions to discourage development in a flood plain (2)

Require flood protection for policy activation
Large, risk-based deductible

Answer 138

A

246

CHEV.AGRIC 1,2: INTRO & GLOSSARY

Qz-1 intro:What is GF2 (Growing Forward 2)

(f-p-t) framework

Comprehensive (federal-provincial-territorial) framework for (Canada’s agricultural sector)

Answer 139

A

247
E (2018.Spring 8a.) 0.750 pts

CHEV.AGRIC 1,2: INTRO & GLOSSARY

Qz-1 intro:What are the BRMs (Business Risk Management) programs in GF2 (6)

ISIR, AdvPmts, WLPIP

Agri-Insurance (protects against Production Loss)
Agri-Stability (protects against Margin Decline)
Agri-Investment (Investment Fund for small losses)
Agri-Recovery (protects against Disaster)
Advance Payments Program (low-interest loans for Cash Flow management)
WLPIP - Western Livestock Price Insurance Program (protects against flucutuations in livestock prices)

Answer 140

A

248

CHEV.AGRIC 1,2: INTRO & GLOSSARY

Qz-1 intro:How are the BRMs (Business Risk Management) programs funded

(BRM: 1,2,3,6): Agri-Insurance, Agri-Stability, Agri-Investment, WLPIP:
- FUNDED BY (producer-provincial-federal)
(BRM 4): Agri-Recovery:
- FUNDED BY (provincial-federal)
(BRM 5): Advance Payment Program (5):
- FUNDED BY (federal)

Answer 141

A

249
E (2017.Spring 8a.) 0.250 pts

CHEV.AGRIC 1,2: INTRO & GLOSSARY

Qz-1 glossary:Probable yield

expected. .measures..
* Expected yield of an agricultural product (measures coverage in yield-based plans)

Answer 142

A

250

CHEV.AGRIC 1,2: INTRO & GLOSSARY

Qz-1 glossary:Balance-back factor

(factor applied to aggregate premium) to correct for (individual discounts & surcharges)

Answer 143

A

251

CHEV.AGRIC 1,2: INTRO & GLOSSARY

Qz-1 glossary:Risk-splitting benefits

ind. .subset..
* Indemnity based on a subset of production (for a given agricultural product)

Answer 144

A

252
E (2018.Fall 12b.i) 0.250 pts

CHEV.AGRIC 1,2: INTRO & GLOSSARY

Qz-1 glossary:Reinsurance load

To account for reinsurance costs when the province purchases reinsurance

Answer 145

A

253
E (2015.Fall 10a.i) 0.250 pts

CHEV.AGRIC 1,2: INTRO & GLOSSARY

Qz-1 glossary:Uncertainty load (or risk margin)

lim(DAM)

A load in rates to account for limitations in (data, assumptions, methods)

Answer 146

A

254
E (2018.Fall 12b.ii) 0.250 pts

CHEV.AGRIC 1,2: INTRO & GLOSSARY

Qz-1 glossary:Self-sustainability load

deficit. surplus
* A load in rates to recover deficits & maintain surplus

Answer 147

A

255
E (2015.Fall 10b.) 0.500 pts

CHEV.AGRIC 1,2: INTRO & GLOSSARY

Qz-1 glossary:Reason for (uncertainty, self-sustainability) load

Uncertainty load: covers future contingencies
Self-sustainability load: recovers past deficits

Answer 148

A

256

CHEV.AGRIC 4a: PRODUCTION INSURANCE PROGRAMS

Qz-2 intro:Actuarial Certification - what is the content of such certification

ProbYld.Pricing.Self-Sust

The Actuarial Certification should provide an opinion on:
1. METHOD for calculating probable yield (for deriving exposure for yield-based plans)
2. METHOD for pricing
3. SELF-SUSTAINABILITY of program

Answer 149

A

257

CHEV.AGRIC 4a: PRODUCTION INSURANCE PROGRAMS

Qz-2 intro:Actuarial Certification - why is it required

For federal funding

Answer 150

A

258

CHEV.AGRIC 4a: PRODUCTION INSURANCE PROGRAMS

Qz-2 intro:Actuarial Certification - how often is it required

Frequency is determined using a RISK-BASED approach
At least every 5 yrs

Answer 151

A

259

CHEV.AGRIC 4a: PRODUCTION INSURANCE PROGRAMS

Qz-2 intro:Actuarial Certification - what triggers the requirement of a new certification (2)

chgs(PD.M).new

Significant changes in program design or methods
New crops

Answer 152

A

260
E (2018.Fall 12a.) 0.250 pts

CHEV.AGRIC 4a: PRODUCTION INSURANCE PROGRAMS

Qz-2 regulation:Key elements of Canadian Agri-Insurance Regulation (4)

Minimum deductible = 10%
Probable yields must reflect DEMONSTRATED production capabilities (to prevent over-insurance)
Rates must be ACTUARIALLY SOUND (include self-sustainability load + relevant costs)
Actuarial Certification is required (if uncertified, then federal govt may reduce premium contributions to province)

Answer 153

A

261
E (2016.Spring 8a.i) 0.500 pts

CHEV.AGRIC 4a: PRODUCTION INSURANCE PROGRAMS

Qz-3 types of AgriIns plans:Identify the main types of Agri-Insurance plans & provide examples of each

y(I-C).ny(WAM)

Yield-based plan (individual OR collective)
Non-yield-based plan (weather derivative, acre-based, mortality for livestock)

Answer 154

A

262
E (2016.Spring 8a.ii) 0.500 pts

CHEV.AGRIC 4a: PRODUCTION INSURANCE PROGRAMS

Qz-3 types of plans:When does yield-based plan pay

Pays when: (individual OR collective production) < (production guarantee) FOR a specified agricultural product

Answer 155

A

263
E (2016.Spring 8b.i) 0.500 pts

CHEV.AGRIC 4a: PRODUCTION INSURANCE PROGRAMS

Qz-3 types of plans:What is the coverage trigger for a non-yield based, weather derivative plan

TRIGGER: when pre-determined meteorological thresholds are breached REGARDLESS of actual production

Answer 156

A

264
E (2016.Spring 8b.ii) 0.500 pts

CHEV.AGRIC 4a: PRODUCTION INSURANCE PROGRAMS

Qz-3 types of plans:What is the coverage trigger for a non-yield based, tree mortality plan

TRIGGER: when more than a certain % of trees are destroyed by an insured peril REGARDLESS of actual production

Answer 157

A

265

CHEV.AGRIC 4a: PRODUCTION INSURANCE PROGRAMS

Qz-3 probable yields:What is the formula for probable yield in a yield-based plan (easy - just say it in words)

Average of yearly production yields

Answer 158

A

266

CHEV.AGRIC 4a: PRODUCTION INSURANCE PROGRAMS

Qz-3 probable yields:Adjustments to historical yields - what is the purpose of such adjustments

To reflect current production capability (similar to on-leveling premiums)

Answer 159

A

267
E (2017.Spring 8b.) 1.000 pts

CHEV.AGRIC 4a: PRODUCTION INSURANCE PROGRAMS

Qz-3 probable yields:Adjustments to historical yields - what are the triggers for making such adjustments (5)

(changes in farming, program, data), perennials, crop quality

A change in farming or management practices
A change in insurance program design
A change in data source or data collection technique
Maturity of perennials (yield would vary over their life cycle)
Quality variation of crop from year-to-year (due to insured perils or other cause)

Answer 160

A

268
E (2017.Spring 8c.i) 1.000 pts

CHEV.AGRIC 4a: PRODUCTION INSURANCE PROGRAMS

Qz-3 probable yields:Stabilizing methods for probable yields - identify the stabilizing methods (6)

Alice Can Select Cool Smoothing Techniques

>Alice Can Select Cool Smoothing Techniques:

Average:
- Use a long-term average of historical yields (15-25yrs)
Cap:
- cap data to limit year-over-year changes
Split:
- split basic & excess coverage since excess coverage is more volatile
Cushion:
- Give data outliers smaller weights when averaging (to cushion their effect)
Smooth:
- Apply floors/ceilings to data points (to smooth the effect of outliers)
Transition (rules):
- Use transition rules after introducing a new yield method (to smooth the transition)

Answer 161

A

269

CHEV.AGRIC 4a: PRODUCTION INSURANCE PROGRAMS

probable yields:How do you calculate probable yield given NO missing years of data

Probable yield = avg ( production yield over all years )

Answer 162

A

270

CHEV.AGRIC 4a: PRODUCTION INSURANCE PROGRAMS

probable yields:How do you calculate probable yield when there ARE missing years of data

Probable yield = avg (production yield over all years)
- But FILL IN missing years with: (Provincial Avg x index)
- Where INDEX = avg ( Production Yld / Provincial Yld ) USING yrs for which producer data is available

Answer 163

A

271
E (2016.Spring 8c.i) 0.250 pts

CHEV.AGRIC 4b: PRODUCTION INSURANCE PROGRAMS

Qz-4 prod G&L:Formulas - yield-based plans: (PG, L) or Production Guarantee & Liability

PG = APC
L$ = APC x (insured unit price)
- Where

A = insured Area

P = Probable yield per unit of area

C = coverage level %

Answer 164

A

272

CHEV.AGRIC 4b: PRODUCTION INSURANCE PROGRAMS

Qz-4 prod G&L:Formulas - non-yield-based plans: (PG, L) or Production Guarantee & Liability

PG formula is not applicable since there is NO production guarantee for non-yield-based plans
L$ = (# insured units) x (insured unit price)

Answer 165

A

273
E (2016.Spring 8c.ii) 0.250 pts

CHEV.AGRIC 4b: PRODUCTION INSURANCE PROGRAMS

Qz-4 indemnity:Yield-based plan - formulas: indemnity $s

Indem$ = MAX(0, PG - AP) x (insured unit price)
- Where
PG = Production Guarantee
AP = Actual Production

Answer 166

A

276

CHEV.AGRIC 4b: PRODUCTION INSURANCE PROGRAMS

Qz-4 indemnity:Non-yld-based plan - types of weather events that are covered (3)

Excessive rainfall
Drought
Freeze

Answer 167

A

.$.deduc

277

CHEV.AGRIC 4b: PRODUCTION INSURANCE PROGRAMS

Qz-4 indemnity:Non-yld-based plan - identify variables that affect compensation in such plans (3)

# units affected
Insured price
Deductible

Answer 168

A

278

CHEV.AGRIC 4b: PRODUCTION INSURANCE PROGRAMS

Qz-4 premiums:Production insurance programs - what are included/excluded in rate calculations for production insurance programs

Expected losses only (administrative costs are shared between federal & provincial govt)

Answer 169

A

279

CHEV.AGRIC 4b: PRODUCTION INSURANCE PROGRAMS

Qz-4 premiums:Production insurance programs - formula for Prem$

Prem$ = PremRt x L$ (Note that PremRt varies by Covg%)

Answer 170

A

280

CHEV.AGRIC 4b: PRODUCTION INSURANCE PROGRAMS

Qz-4 premiums:Production insurance programs - formula for Indem$ (& IndemRt)

Indem$ = IndemRt x L$ (Note: First calculate Indem$ using above formula THEN calculate IndemRt THEN feed into PremRt)

Answer 171

A

281

CHEV.AGRIC 4b: PRODUCTION INSURANCE PROGRAMS

Qz-4 premiums:Production insurance programs - what are the consequences of rate instability

fluctuations, adverse selection

Fluctuations in participation, adverse selection

Answer 172

A

282

CHEV.AGRIC 4b: PRODUCTION INSURANCE PROGRAMS

Qz-4 premiums:Production insurance programs - what load factors must be incorporated to arrive at the final PremRt

IRt(UB+/-RS) (alternately or SIR BUDs)

To get PREMIUM RATE, start with INDEMNITY RATE then incorporate:
1. Uncertainty margin
2. Balance-back factors
3. Individual discount/surcharge
4. Reinsurance load
5. Self-sustainability load

Answer 173

A

283

CHEV.AGRIC 4b: PRODUCTION INSURANCE PROGRAMS

Qz-4 premiums:Production insurance programs - how are NON-yield-based plans priced

Same as yld-based plans (IRt(UB+/-RS)
- But possibly with extra considerations
EXAMPLE: weather-derivative plans may have extra considerations like temperature thresholds

Answer 174

A

284
E (2015.Fall 10c.) 0.500 pts

CHEV.AGRIC 4b: PRODUCTION INSURANCE PROGRAMS

Qz-4 premiums:Production insurance programs - identify pricing considerations for weather derivative plans (2)

weather: data, effects

CONSIDERATION 1 - DATA: long-term history of meteorological data (vs producer data)
CONSIDERATION 2 - EFFECTS: how weather affects production losses

Answer 175

A

285
E (2018.Fall 12b.iv) 0.500 pts

CHEV.AGRIC 4c: PRODUCTION INSURANCE PROGRAMS

Qz-5 self-sust:What is the federal requirement for self-sustainability (statistical defn)

FOR ALL (base, adverse) scenarios with INITIAL DEFICIT = 6th yr 95th percentile:
- MUST RECOVER DEFICIT IN (15yrs: avg, 25yrs: 80% prob)

Answer 176

A

286

CHEV.AGRIC 4c: PRODUCTION INSURANCE PROGRAMS

Qz-5 self-sust:What is the BASIS for the self-sustainability load selection

Targ($%x.perc)

LOAD BASIS = (selected target surplus level), and can be expressed in different ways
1. $-value
2. % of liability dollars
3. Multiple of premiums
4. Percentile over a given time horizon

Answer 177

A

287
E (2018.Fall 12c.(i,ii) 0.500 pts

CHEV.AGRIC 4c: PRODUCTION INSURANCE PROGRAMS

Qz-5 self-sust:What is the basis for the self-sustainability test

TEST BASIS: 25-yr stochastic simulation of financial position

Answer 178

A

288

CHEV.AGRIC 4c: PRODUCTION INSURANCE PROGRAMS

Qz-5 self-sust:What is the source of VOLATILITY in stochastic simulations of self-sustainability

Mainly the indemnity component
- Because the (probable yield & premium rate) methodologies are designed to avoid large year-to-year variations

Answer 179

A

289

CHEV.AGRIC 4c: PRODUCTION INSURANCE PROGRAMS

Qz-5 self-sust:What is the actuary’s role regarding the self-sustainability test

design. confirm
* The actuary should (design OR confirm) methodology for calculating the self-sustainability load

Answer 180

A

290
E (2018.Fall 12b.iii) 0.500 pts

CHEV.AGRIC 4c: PRODUCTION INSURANCE PROGRAMS

Qz-5 self-sust:Actuary - identify adverse scenarios relevant to self-sustainability in agri-insurance

Increase in liabilities (increases maximum exposure)
Decrease in liabilities
- This can be severe when surplus vulnerable after cat since future premiums are lower & deficit recovery takes longer
Adverse claims experience
Introduction of a new insurance plan
Deterioration in market value of investments
Combination of the above scenarios

Answer 181

A

291
E (2017.Fall 8b.) 0.750 pts

CHEV.AGRIC 4c: PRODUCTION INSURANCE PROGRAMS

Qz-5 self-sust:Test - compare agricultural self-sustainability to DCAT (Similarity, Difference)

(base.adv):FullStoch

SIMILARITY: both consider (base, adverse) scenarios
DIFFERENCES: agricultural self-sustainability uses a fully stochastic simulation over a longer time horizon

Answer 182

A

292

CHEV.AGRIC 4c: PRODUCTION INSURANCE PROGRAMS

Qz-5 GovtRe:Is Govt reinsurance for agri-insurance considered traditional reinsurance

No, it’s an optional deficit-financing scheme
Province may finance deficits as they occur VERSUS regularly contributing to a govt reinsurance fund

Answer 183

A

293

CHEV.AGRIC 4c: PRODUCTION INSURANCE PROGRAMS

Qz-5 GovtRe:Describe the FUNDING mechanism for govt reinsurance for agri-insurance

Provincial producer programs contribute a % of premium to (provincial & federal) reinsurance
Amount is based on (surplus position & risk profile)
Must self-sustain for 25 yrs

Answer 184

A

294

CHEV.AGRIC 4c: PRODUCTION INSURANCE PROGRAMS

Qz-5 GovtRe:What triggers govt reinsurance for an agri-insurance program

When SURPLUS of the production insurance fund is DEPLETED
Note that indemnities net of private insurance are paid out of production insurance fund first (shout-out to IK!))

Answer 185

A

295
E (2015.Spring 14a.) 0.500 pts

CHEV.AGRIC 4c: PRODUCTION INSURANCE PROGRAMS

Qz-5 roles:Identify the roles & responsibilities of the FEDERAL govt in agri-insurance programs

guidelines, financing

Develop guidelines for production insurance programs
Provide financing mechanism when programs are in deficit position

Answer 186

A

296
E (2015.Spring 14b.) 0.500 pts

CHEV.AGRIC 4c: PRODUCTION INSURANCE PROGRAMS

Qz-5 roles:Identify the roles & responsibilities of the PROVINCIAL govt in agri-insurance programs

rates, claims

Determine (probable yield, premium rate)
Manage claims

Answer 187

A

297
E (2015.Spring 14c.) 0.500 pts

CHEV.AGRIC 4c: PRODUCTION INSURANCE PROGRAMS

Qz-5 roles:Identify the roles & responsibilities of the PRODUCERS in agri-insurance programs

pay, report

Pay their share of the premium
Report yields

Answer 188

A

298
E (2018.Spring 8c.) 0.250 pts

CHEV.AGRIC 4c: PRODUCTION INSURANCE PROGRAMS

Qz-5 roles:Identify the roles & responsibilities of the PRIVATE INSURANCE & reinsurance in agri-insurance programs

unInsured perils, reinsurance for govt

PRIVATE INSURANCE: provides coverage (for producer) for perils not covered under govt insurance (Ex: fire)
REINSURANCE: provides reinsurance for Govt INSURANCE

Answer 189

A

299

CHEV.AGRIC: SUPP

Qz-6 Bloom’s Taxonomy:**Compare the different triggers for:

(1) Actuarial Certification
(2) Historical Adjustments to Probable Yield
(3) Risk Transfer Test**

Actuarial Certification:
- Significant changes in program design or methods
- New crops
Historical Adjustments to Probable Yield:
- A change in farming or management practices
- A change in insurance program design
- A change in data source or data collection technique
- Maturity of perennials (yield would vary within their life cycle)
- Quality variation of crop from year-to-year (due to insured perils or other cause)
Risk Transfer Test:
- Inception of contract
- When contract change significantly alters expected future cash flows

Answer 190

A

300

CHEV.AGRIC: SUPP

Qz-6 Bloom’s Taxonomy:Examples of areas where Actuarial Certifications are required (4)

Agricultural Insurance Production Programs
Risk Transfer Analysis
Valuation of Reserves
Rate Filings (certain aspects)

Answer 191

A

301

CHEV.AGRIC: SUPP

Qz-6 Bloom’s Taxonomy:Examples of areas where Transition Rules are used (2)

Agricultural Insurance - Probable Yield calculation:
- After a new methodology is introduced
- Use “transition rules” or “stabilizing methods” to prevent sudden large changes
Rating:
- Prevents individual policyholders from getting a big rate change all at once

Answer 192

A

302

CHEV.AGRIC: SUPP

Qz-6 Bloom’s Taxonomy:Examples of areas where stochastic models are used

Agricultural Insurance
- For adverse scenarios in self-sustainability model
DCAT scenarios
- When risk distribution is easily inferred
MfADs
- Where the cost distribution is skewed, and deterministic methods may not work well

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