C1 COPY Flashcards

Question

37 MCT 7:CAPITAL REQUIRED: OPERATIONAL RISK Qz-6 general:**List 2 types of risk that are EXCLUDED from MCT operational risk (2)**

Answer 1

37 MCT 7:CAPITAL REQUIRED: OPERATIONAL RISK Qz-6 general:**List 2 types of risk that are EXCLUDED from MCT operational risk (2)** 1. Strategic risk 2. Reputation risk

Answer 2

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

Answer 3

39 MCT 7:CAPITAL REQUIRED: OPERATIONAL RISK Qz-6 general:**What is rapid premium growth linked to (3)** 1. Mergers 2. New LOBs 3. Changes to products or U/W criteria

Answer 4

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

Answer 5

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

Answer 6

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

Answer 7

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

Answer 8

56 *E (2015.Fall 18a.) 0.500 pts* MCT SUPP: OTHER EXAM PROBLEMS Qz-8 supp:**Purpose of establishing a supervisory target MCT (3)** 1. Early warning for management 2. Threshold for OSFI intervention 3. Accounts for (all risks in MCT ratio) + (non-modeled risks, off-B/S risks) + MARGIN

Answer 9

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

Answer 10

70 CIA.MfAD 01-04: INTRODUCTION Qz-1 intro:**What are some broad methods for calculating MfADs (2)** deterministic, stochastic 1. Deterministic: select percentages directly based on knowledge of the situation 2. Stochastic: use quantile methods based on a statistical analysis

Answer 11

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)

Answer 12

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

Answer 13

73 CIA.MfAD 01-04: INTRODUCTION Qz-1 defns:**Categories of MfADs (3)** 1. Investment return rates 2. Development on claims 3. Recovery on losses ceded to reinsurer

Answer 14

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

Answer 15

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)

Answer 16

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)** 1. Investment return rate ( 25 bps , 200 bps ) 2. Claims development ( 2.5% , 20% ) 3. Reinsurance recovery ( 0% , 15% )

Answer 17

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 1. Operations (U/W, claims management, other) 2. Data (on which estimate is based) 3. LOB

Answer 18

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)

Answer 19

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

Answer 20

81 CIA.MfAD 05: EXPLICIT ASSMPS - DETERMINISTIC MfADs Qz-2 MfAD(clms):**Identify LOB considerations in selecting MfAD(clms) -\> (when to pick low)** S 1. Pick LOW when LOBs are "stable"

Answer 21

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) 1. For significant changes: (tort reform, legal challenges) 2. For a new LOB in new province with limited data 3. For an increase in retentions with limited data for assessing effect

Answer 22

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 1. If there is unusually high uncertainty 2. If PfAD is already very low because best estimate of claims liability is very low 3. If a stochastic analysis indicates variability not identified using a deterministic analysis

Answer 23

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 1. LOB commuted to reinsurer and is in runoff 2. LOB has pre-set payments (Ex: structured settlement) 3. Insurer has stop-loss coverage reserved at stop-loss limit

Answer 24

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 1. Consider ceded Loss Ratio (if high: pick MfAD high) 2. Consider proportion of unregistered reinsurance (if high: pick MfAD high) 3. Consider financial condition of reinsurer (if poor: pick MfAD high)

Answer 25

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 1. MATCHING of cash flows from assets & liabilities (if unmatched: pick MfAD high) 2. ERROR in estimating payment patterns (if uncertain: pick MfAD high) 3. ASSET risk (credit/default & liquidity) (if high risk: pick MfAD high)

Answer 26

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

Answer 27

92 CIA.MfAD 05: EXPLICIT ASSMPS - DETERMINISTIC MfADs Qz-2 MfAD(inv):**Formula-based deterministic approaches (2)** 1. Weighted formula 2. Explicit quantification

Answer 28

93 CIA.MfAD 05: EXPLICIT ASSMPS - DETERMINISTIC MfADs MfAD(inv):**Weighted formula method** 1. MfAD(inv) = iPM - iAM 2. iAM = min [iPM, iRFM x (1-k)]

Answer 29

97 CIA.MfAD 11: Documentation & Reporting Qz-4 docs:**What should be disclosed in MfAD docs** 1. For explicit assumptions: how margins were selected 2. For stochastic analysis: describe components modeled as random variables, with their distributions & parameters

Answer 30

98 CIA.MfAD 11: Documentation & Reporting Qz-4 docs:**Rule of thumb for level of detail to include in MfAD docs (i)** 1. Strike balance between (too little, too much) 2. Considering what (qualitative, quantitative) info best serves user's (understanding, decision-making)

Answer 31

99 CIA.MfAD 11: Documentation & Reporting Qz-4 docs:**Rule of thumb for level of detail to include in MfAD docs (ii)** SIC 1. Sophistication of user 2. Importance of concept to user 3. Complexity of concept * NOTE: cross-reference with materiality paper

Answer 32

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

Answer 33

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)** 1. PV: accounts only for the time value of money 2. APV: accounts for the time value of money AND includes a risk margin for (investment return, claims development, reinsurance recovery)

Answer 34

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)

Answer 35

109 *E (2015.Spring 19c.) 0.500 pts* CIA.MfAD SUPP: supp:**In general, what are possible choices for selection of ceded discount rate** 1. Risk-free rate 2. Rate used by reinsurer to discount the same liabilities

Answer 36

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 1. Strategic 2. Reputational 3. Fraud 4. Innovation 5. International development * NOTE: CAS answer seemed to include several 'normal' risks

Answer 37

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

Answer 38

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** 1. Explicitly calculate investment income and add to excess amount 2. Discount the undiscounted amounts (back to the SAME POINT IN TIME) to reverse effects of discounting

Answer 39

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)** 1. Subjective analysis of market position 2. Quality of management 3. Quality of reinsurance 4. Prospects for growth & innovation

Answer 40

132 *E (2013.Fall 23c.) 0.500 pts* MSA.RATIOS: All Qz-3 intuition:**What does diversification score measure** 1. Measures how closely the insurer tracks the overall Canadian market (in terms of geographic & LOB spread) 2. If diversification score \> 65 --\> company is highly diversified

Answer 41

133 MSA.RATIOS: All Qz-3 intuition:**Give examples of an insurer with a low/high diversification score** 1. Low: niche insurers 2. High: national, multi-line writers

Answer 42

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 43

162 *E (2018.Spring 12a.iii) 0.250 pts* FA.DUTIL: ALL Qz-1 intro:**Objective of FA (Facility Association)** ensure..for..unable 1. ensure auto insurance availability * For.. 2. all owners & licensed drivers * Who are.. 3. unable to obtain coverage through the voluntary market

Answer 44

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.. 1. Created by insurance industry 2. (unincorporated, non-profit) of (ALL auto insurers)

Answer 45

164 *E (2018.Spring 12a.ii) 0.000 pts* FA.DUTIL: ALL Qz-1 intro:**Mission of FA** administer, enhance stability, minimize market share 1. Administer residual market mechanisms 2. Enhance MS (market stability) through RSPs 3. Minimize MS (market share), so consumers benefit from private mkt

Answer 46

165 *E (2019.Spring 8a.) 0.750 pts* FA.DUTIL: ALL Qz-1 org:**Types of risk-sharing mechanisms administered by FA (3)** 1. FARM (Facility Association Residual Market) 2. RSPs (Risk-Sharing Pools) 3. UAF (Uninsured Automobile Fund)

Answer 47

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 48

167 *E (2017.Spring 7a.i) 0.250 pts* FA.DUTIL: ALL Qz-1 org:**Key purpose of RSP** market stability 1. Enhance market stability by allowing insurers to pool bad risks that have passed their own U/W criteria * (premiums & losses are shared)

Answer 49

168 FA.DUTIL: ALL Qz-1 org:**Key purpose of UAF** ..(no,inadeq).. * Provide compensation in cases of (no, inadequate) insurance

Answer 50

169 *E (2019.Spring 8b.) 0.750 pts* FA.DUTIL: ALL Qz-1 org:**Where does FA operate its various mechanisms** 1. FARM: everywhere except provinces with public auto (BC,MB,SK,QC) 2. RSP: (ON, AB, NS, NB), note that Quebec operates its own RSP, called PRR 3. UAF: Atlantic Provs

Answer 51

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 52

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 53

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 54

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 55

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 56

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 57

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 58

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 59

178 FA.DUTIL: ALL Qz-1 Board of Directors & Members:**Functions of FA's board of directors (4)** 1. RATE CHANGES: approve rate changes & filings 2. EXPENSES: authorize expenses 3. STANDARDS: establish standards for servicing carriers & RSP users 4. COMMITTEES: appoint committees & subcommittees

Answer 60

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 61

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)** 1. PPA only 2. Insured can't be eligible for FARM 3. Policy must satisfy statutory minimum coverage requirements 4. Insurer must follow proper classification & rating, and provide documentation 5. Insurer must use approved rates

Answer 62

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 63

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 64

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 65

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 66

185 FA.DUTIL: ALL AB RSP:**What are the 2 types of RSPs in Alberta** 1. GRID: * for risks subject to statutory maximum premium 2. Non-GRID: * for any risks the insurer feels are under-priced (similar to the Ontario RSP)

Answer 67

186 FA.DUTIL: ALL AB RSP:**What is the difference between the Alberta GRID & non-GRID regarding pool transfer limits** 1. GRID: * no limit on # risks transferred 2. Non-GRID: * limit = 4% x (Total, Voluntary, Non-Fleet, PPA) written car-yrs

Answer 68

187 FA.DUTIL: ALL AB RSP:**What is the reason for the difference in transfer limits between the Alberta GRID & non-GRID pools** 1. GRID: * because Alberta law requires insurer to accept risks for which they have no control over price 2. Non-GRID: * because Alberta law has a take-all-comers rule

Answer 69

188 *E (2018.Fall 10.) 1.500 pts* FA.DUTIL: ALL Qz-3 ON vs AB:**Identify differences between the ON and AB RSPs** 1. Difference 1: * ON has 1 RSP * AB has 2 RSPs (GRID & non-GRID) 2. Difference 2: * ON RSP covers 85% of ceded risk * AB RSPs cover 100% of ceded risk 3. Difference 3: * ON has a 5% limit on risks that can be ceded * AB GRID has no limit (non-GRID has 4% limit)

Answer 70

189 FA.DUTIL: ALL NB RSP:**Describe the New Brunswick RSP (who it serves, condition for transfer, transfer limit)** 1. Who it serves: * New Brunswick risks with New Brunswick insurers 2. Transfer condition: * Household must have at least 1 recently licensed driver with a good driving record 3. Limit 1. = 8% x (Total, Voluntary, Non-Fleet, PPA) direct written exposures

Answer 71

190 FA.DUTIL: ALL NS RSP:**Describe the Nova Scotia RSP (who it serves, condition for transfer, transfer limit)** 1. 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 72

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 73

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 74

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 75

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)** 1. Higher risk justifies higher returns to compensate 2. Using lower ROE may cause insurer's not offer product (reduces availability for consumer)

Answer 76

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 77

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 78

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 1. To RECOGNIZE prepaid expenses over policy term PROVIDED such costs are recoverable from equity in UPR 2. Matches premiums with expenses

Answer 79

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 80

204 CIA.PrLiabs 1: INTRODUCTION Qz-1 defns:**Define 'PDR' (Premium Deficiency Reserve)** * A LIABILITY arising when (equity in the NET UPR) \< 0

Answer 81

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 82

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 1. Ratemaking analysis 2. Industry benchmarks 3. Claims liabilities loss ratio 4. Expert judgment * (in other words, just ask Alice)

Answer 83

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 84

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'** 1. Basically doing LOBs together means that DPAE for one LOB can offset PDR for another 2. Then just relate to given numbers

Answer 85

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 1. Adverse selection (if offered, would be too expensive) 2. Govt under-investment in risk (planning, mitigation) 3. Lack of effective flood hazard maps

Answer 86

215 IBC.FLOOD 1: Introduction Qz-1 ExecSumm:**Examples of government under-investment in flood management (4)** BAIL (me out!) 1. BUILDING codes (obsolete) 2. ASSET management (poor) 3. INFRASTRUCTURE (lack of) 4. LAND-use planning (inadequate)

Answer 87

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$ 1. FLOOD MAPS: for planning & risk management 2. INFRASTRUCTURE: levies, sewers 3. AWARENESS: of [risk, risk mitigation, financial management] by policyholders 4. INCENTIVES: for Individual risk mitigation should be encouraged by limited govt compensation $s

Answer 88

217 IBC.FLOOD 1: Introduction Qz-1 intro:**Most common type of natural disaster in Canada** * Overland flooding

Answer 89

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 1. GROWTH (popn | density | asset values) 2. CONCENTRATED development in flood-prone areas 3. Severe WEATHER 4. Vulnerability due to obsolete BUILDING codes 5. UNDER investment

Answer 90

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 91

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)** 1. Multi-peril causes from sewer (covered) & overland flooding (not covered) * Difficult to separate so insurers just pay everything 2. Avoid reputational damage & political pressure

Answer 92

221 IBC.FLOOD 1: Introduction Qz-1 Fld FinMgmt (Ins):**Why is overland flooding not insurable (2)** insurability requires: RUU 1. Insurability requires (Randomness, Uncertainty, Uncorrelated risks) 2. Floods are (predictable, correlated) & large # of properties are affected at the same time

Answer 93

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 1. MODEL: * Public or private 2. PURCHASE: * Mandatory or voluntary 3. PACKAGING: * Bundled or optional 4. PRICING: * Set by government or risk-based pricing 5. SUBSIDIES: * Provided by other policyholders or through taxes 6. GOVERNMENT ROLE: * Insurer or enabler

Answer 94

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 1. MODEL: * Public or private 2. PURCHASE: * Mandatory or voluntary 3. PACKAGING: * Bundled or optional 4. PRICING: * Set by government or risk-based pricing 5. SUBSIDIES: * Provided by other policyholders or through taxes 6. GOVERNMENT ROLE: * Insurer or enabler

Answer 95

225 IBC.FLOOD 2: Case Studies Qz-2 UK:**Describe the U.K. flood insurance program with respect to the 6 variables** 1. Private 2. Voluntary 3. Bundled with homeowner's insurance 4. Uses risk-based-pricing 5. Cross-subsidized by policyholders 6. Government is an enabler through (risk mitigation, flood mapping, zoning) * UPTAKE = 95%

Answer 96

226 IBC.FLOOD 2: Case Studies Qz-2 UK:**U.K. flood insurance - purpose (3)** SA25 1. Sustainability 2. Maintain AA (affordability & availability) 3. 25-yr transition to full private risk-based pricing

Answer 97

227 IBC.FLOOD 2: Case Studies Qz-2 UK:**U.K. flood insurance - how does it work (4)** target.exclude 1. Target only high-risk properties (identified through risk-mapping) 2. Excludes homes built after 2009 to discourage building in high-risk areas 3. (if insurer's risk-based-price is \> price ceiling) (charge ceiling & cede to flood reinsurance) 4. (if insurer's risk-based-price is ≤ ceiling) insurer may retain risk

Answer 98

228 IBC.FLOOD 2: Case Studies Qz-2 UK:**U.K. flood insurance - how is affordability ensured** * Price ceilings

Answer 99

229 IBC.FLOOD 2: Case Studies Qz-2 UK:**U.K. flood insurance - what is the role of Govt (3)** ceilings.FinRelief.inv 1. Set price ceilings 2. Financial relief for cats exceeding pool capacity 3. Infrastructure investment

Answer 100

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** 1. Is it insurance or welfare: * it is insurance because people pay premiums and only covered losses are paid out 2. Is it necessary: * yes, due to climate change and that private flood insurance is insufficient 3. Is it efficient: * yes, costs are lower because there are no commissions or advertising costs

Answer 101

231 IBC.FLOOD 3: Best Practices Qz-3 InsR Role:**Why is having a flood insurance program better than Govt disaster relief** indemnifies, incentivizes 1. Insurance INDEMNIFIES whereas Govt provides basic relief only 2. Insurance INCENTIVIZES through risk-based pricing whereas Govt relief is taxpayer funded, so no individual incentive for risk-mitigation

Answer 102

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 103

233 *E (2019.Spring 9a.) 0.500 pts* IBC.FLOOD 3: Best Practices Qz-3 InsR Role:**Advantages of bundling flood insurance** 1. Higher uptake 2. Reduces adverse selection (since not only high-risk insureds will purchase) 3. Promotes affordability (cross-subsidization of high-risk insureds by low-risk insureds)

Answer 104

234 IBC.FLOOD 3: Best Practices Qz-3 InsR Role:**State 1 advantage & 1 disadvantage of bundling flood insurance for low-risk policy holders** 1. DISADVANTAGE: low-risk would subsidize high-risk 2. ADVANTAGE: weather trends mean previously low-risk areas may suffer a flood disaster, and bundling ensures low-risk areas are covered

Answer 105

235 IBC.FLOOD 3: Best Practices Qz-3 InsR Role:**Role of insurer in private flood insurance** UPEC 1. U/W: distinguish low & medium rsks from HIGH risks 2. PRICING: use risk-based pricing 3. EDUCATION: educate policyholders regardings risks, financial management, and mitigation 4. CLAIMS: pay covered losses in timely manner

Answer 106

236 IBC.FLOOD 3: Best Practices Qz-3 Govt Role:**Role of Govt in supporting private flood insurance (4)** MESA 1. MITIGATION: promote mitigation of risk (structural: infrastructure,...) & (non-structural: zoning,...) 2. EDUCATION: regarding awareness & management of flood risk 3. SUBSIDIES: provide subsidies to high-risk households where risk-based pricing is unaffordable 4. ASSESSMENT: of risk through accurate flood plain maps

Answer 107

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 108

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 109

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** 1. Private insurance may have coverage limits that are exceeded in a major disaster (so Govt pays amount not covered) 2. Govt may subsidize otherwise uninsurable risks through taxation

Answer 110

240 IBC.FLOOD 3: Best Practices Qz-3 CdnImpact:**How can flood insurance unaffordability for high-risk customers be addressed (2)** bundle.sub 1. BUNDLING: bundle flood with standard homeowner's policy (low-risk customers subsidize high-risk) 2. SUBSIDIES: Govt can provide subsidies through taxation

Answer 111

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 112

242 IBC.FLOOD 3: Best Practices Qz-3 CdnImpact:**NDMP objectives (general)** 1. Proactive approach to disaster risk management 2. Reduce impact of natural catastrophes on Canadians

Answer 113

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)** 1. Require flood protection for policy activation 2. Large, risk-based deductible

Answer 114

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 115

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 1. Agri-Insurance (protects against Production Loss) 2. Agri-Stability (protects against Margin Decline) 3. Agri-Investment (Investment Fund for small losses) 4. Agri-Recovery (protects against Disaster) 5. Advance Payments Program (low-interest loans for Cash Flow management) 6. WLPIP - Western Livestock Price Insurance Program (protects against flucutuations in livestock prices)

Answer 116

248 CHEV.AGRIC 1,2: INTRO & GLOSSARY Qz-1 intro:**How are the BRMs (Business Risk Management) programs funded** 1. (BRM: 1,2,3,6): Agri-Insurance, Agri-Stability, Agri-Investment, WLPIP: * FUNDED BY (producer-provincial-federal) 2. (BRM 4): Agri-Recovery: * FUNDED BY (provincial-federal) 3. (BRM 5): Advance Payment Program (5): * FUNDED BY (federal)

Answer 117

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 118

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 119

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 120

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 121

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 122

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 123

255 *E (2015.Fall 10b.) 0.500 pts* CHEV.AGRIC 1,2: INTRO & GLOSSARY Qz-1 glossary:**Reason for (uncertainty, self-sustainability) load** 1. Uncertainty load: covers future contingencies 2. Self-sustainability load: recovers past deficits

Answer 124

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 125

257 CHEV.AGRIC 4a: PRODUCTION INSURANCE PROGRAMS Qz-2 intro:**Actuarial Certification - why is it required** * For federal funding

Answer 126

258 CHEV.AGRIC 4a: PRODUCTION INSURANCE PROGRAMS Qz-2 intro:**Actuarial Certification - how often is it required** 1. Frequency is determined using a RISK-BASED approach 2. At least every 5 yrs

Answer 127

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 1. Significant changes in program design or methods 2. New crops

Answer 128

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)** 1. Minimum deductible = 10% 2. Probable yields must reflect DEMONSTRATED production capabilities (to prevent over-insurance) 3. Rates must be ACTUARIALLY SOUND (include self-sustainability load + relevant costs) 4. Actuarial Certification is required (if uncertified, then federal govt may reduce premium contributions to province)

Answer 129

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) 1. Yield-based plan (individual OR collective) 2. Non-yield-based plan (weather derivative, acre-based, mortality for livestock)

Answer 130

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 131

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 132

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 133

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 134

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 135

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 1. A change in farming or management practices 2. A change in insurance program design 3. A change in data source or data collection technique 4. Maturity of perennials (yield would vary over their life cycle) 5. Quality variation of crop from year-to-year (due to insured perils or other cause)

Answer 136

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 \>**A**lice **C**an **S**elect **C**ool **S**moothing **T**echniques: 1. Average: * Use a long-term average of historical yields (15-25yrs) 2. Cap: * cap data to limit year-over-year changes 3. Split: * split basic & excess coverage since excess coverage is more volatile 4. Cushion: * Give data outliers smaller weights when averaging (to cushion their effect) 5. Smooth: * Apply floors/ceilings to data points (to smooth the effect of outliers) 6. Transition (rules): * Use transition rules after introducing a new yield method (to smooth the transition)

Answer 137

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 138

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 139

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** 1. PG = APC 2. L$ = APC x (insured unit price) * Where A = insured Area P = Probable yield per unit of area C = coverage level %

Answer 140

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 141

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 142

276 CHEV.AGRIC 4b: PRODUCTION INSURANCE PROGRAMS Qz-4 indemnity:**Non-yld-based plan - types of weather events that are covered (3)** 1. Excessive rainfall 2. Drought 3. Freeze

Answer 143

277 CHEV.AGRIC 4b: PRODUCTION INSURANCE PROGRAMS Qz-4 indemnity:**Non-yld-based plan - identify variables that affect compensation in such plans (3)** #.$.deduc 1. # units affected 2. Insured price 3. Deductible

Answer 144

278 CHEV.AGRIC 4b: PRODUCTION INSURANCE PROGRAMS Qz-4 premiums:**Production insurance programs - what are included/excluded in rate calculations for production insurance programs** 1. Expected losses only (administrative costs are shared between federal & provincial govt)

Answer 145

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 146

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 147

281 CHEV.AGRIC 4b: PRODUCTION INSURANCE PROGRAMS Qz-4 premiums:**Production insurance programs - what are the consequences of rate instability** fluctuations, adverse selection 1. Fluctuations in participation, adverse selection

Answer 148

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 149

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 150

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

Answer 151

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 152

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 153

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 154

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 155

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 156

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** 1. Increase in liabilities (increases maximum exposure) 2. Decrease in liabilities * This can be severe when surplus vulnerable after cat since future premiums are lower & deficit recovery takes longer 3. Adverse claims experience 4. Introduction of a new insurance plan 5. Deterioration in market value of investments 6. Combination of the above scenarios

Answer 157

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 1. SIMILARITY: both consider (base, adverse) scenarios 2. DIFFERENCES: agricultural self-sustainability uses a fully stochastic simulation over a longer time horizon

Answer 158

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 159

293 CHEV.AGRIC 4c: PRODUCTION INSURANCE PROGRAMS Qz-5 GovtRe:**Describe the FUNDING mechanism for govt reinsurance for agri-insurance** 1. Provincial producer programs contribute a % of premium to (provincial & federal) reinsurance 2. Amount is based on (surplus position & risk profile) 3. Must self-sustain for 25 yrs

Answer 160

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 161

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 1. Develop guidelines for production insurance programs 2. Provide financing mechanism when programs are in deficit position

Answer 162

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 1. Determine (probable yield, premium rate) 2. Manage claims

Answer 163

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 1. Pay their share of the premium 2. Report yields

Answer 164

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 1. PRIVATE INSURANCE: provides coverage (for producer) for perils not covered under govt insurance (Ex: fire) 2. REINSURANCE: provides reinsurance for Govt INSURANCE

Answer 165

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** 1. Actuarial Certification: * Significant changes in program design or methods * New crops 2. 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) 3. Risk Transfer Test: * Inception of contract * When contract change significantly alters expected future cash flows

Answer 166

300 CHEV.AGRIC: SUPP Qz-6 Bloom's Taxonomy:**Examples of areas where Actuarial Certifications are required (4)** 1. Agricultural Insurance Production Programs 2. Risk Transfer Analysis 3. Valuation of Reserves 4. Rate Filings (certain aspects)

Answer 167

301 CHEV.AGRIC: SUPP Qz-6 Bloom's Taxonomy:**Examples of areas where Transition Rules are used (2)** 1. Agricultural Insurance - Probable Yield calculation: * After a new methodology is introduced * Use "transition rules" or "stabilizing methods" to prevent sudden large changes 2. Rating: * Prevents individual policyholders from getting a big rate change all at once

Answer 168

302 CHEV.AGRIC: SUPP Qz-6 Bloom's Taxonomy:**Examples of areas where stochastic models are used** 1. Agricultural Insurance * For adverse scenarios in self-sustainability model 2. DCAT scenarios * When risk distribution is easily inferred 3. MfADs * Where the cost distribution is skewed, and deterministic methods may not work well

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