FAP MODULE 2 (DESIGNING AND
PRICING AN ACTUARIAL SOLUTION
QUESTIONS AND VERIFIED
ANSWERS|100% CORRECT|GRADE A+
This question consists of two lists. The first list has two items, lettered X. and Y. In the second list there
are three items, numbered I., II., and III. ONE of the lettered items is related in some way to EXACTLY
TWO of the numbered items. Indicate the correct answer.X. Mixed ModelsY. Group (Collective) Models -
ANSWER Y is related to 1 and 3
This question consists of two lists. The first list has two items, lettered X. and Y. In the second list there
are three items, numbered I., II., and III. ONE of the lettered items is related in some way to EXACTLY
TWO of the numbered items. Indicate the correct answer.X. GAAP ProfitY. Statutory ProfitI. Usually
negative during the early years of a new productII. A deferred acquisition cost is amortized over a
number of years, allowing for a higher profit in the early years of a new productIII. - ANSWER X is related
to 2 and 3
An annually renewable term life insurance policy was priced using the following assumptions:
Face amount: $150,000
Expenses and commissions paid-for at the beginning of the policy year: 9% of gross premium
Expected profit at the beginning of the policy year: 6% of gross premium
Expected return on assets during the policy year: 2%
Expected expenses for the settlement of claims: $2,500 per claim
Probability of death during the policy year: 2.2%
Assuming that all deaths, as well as all expenses for - ANSWER Between 3901 and 3910
An insurance company has $100,000,000 of automobile insurance premiums on its books. Each policy
has a $1,000,000 limit, including loss expenses. The insurance company decides to reinsure $800,000 in
excess of $200,000. The expected loss ratio is 75 percent and the Increased Limit Factors (ILF's) are equal
to the following:$100,000 - 1.00$200,000 - 1.05$1,000,000 - 1.15$5,000,000 - 1.20Calculate the
expected reinsured claims. - ANSWER 6.5 Million
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