ID XXX

THE UNIVERSITY OF NEW SOUTH WALES

SEMESTER 2 2014
ACTL4001 /ACTL5100
ACTUARIAL THEORY & PRACTICE B
MID SEMESTER EXAMINATION

1)
2)
3)
4)
5)
6)

TIME ALLOWED - 1 HOUR.

READING TIME 5 MINUTES
THIS EXAMINATION PAPER HAS 3 PAGES
TOTAL NUMBER OF QUESTIONS 3
TOTAL MARKS AVAILABLE 36
ALL ANSWERS MUST BE WRITTEN IN INK. EXCEPT WHERE THEY ARE EXPRESSLY
REQUIRED, PENCILS MAY BE USED ONLY FOR DRAWING, SKETCHING OR GRAPHICAL
WORK
7) THE PAPER MAY BE RETAINED BY THE CANDIDATE.

CANDIDATES MAY BRING IN THEIR OWN CALCULATOR

Question 1

[12 marks]

The Institute of Actuaries of Australia has developed its Capabilities Framework to

provide members of the profession with a guide to planning personal career paths,
and to provide the public with direct knowledge of what might be expected of a
professional. The elements of the framework are:
1. Contribution to Business Strategy
2. Leadership
3. Actuarial Approach to Problem Solving
4. Valuing Uncertain Future Cash Flows
5. Risk Management
6. Professional Governance
7. Product Development Management and Pricing
8. Investment Advice and Governance
a)
b)
c)

For four of these elements, briefly explain what they are and why they are
relevant to the work of some actuaries.
(8)
Indicate which of the elements are most relevant to what you currently see as
your most likely career path.
(2)
Give one example (from one industry in which actuaries practice) of what the
public might expect from actuaries that they might not get from other
professionals.
(2)

Marking guide (one mark per line unless otherwise stated)

a)
For each element one mark for showing understanding and another for
application to the work of actuaries.
Must mention points in italics
1. Contribution to Business Strategy market/capital/M&A strategy
2. Leadership in company/society/team
3. Actuarial Approach to Problem Solving Model and ACC
4. Valuing Uncertain Future Cash Flows Reserving and pricing
5. Risk Management models/capital/ERM/risk appetite
6. Professional Governance standards/ethics.training/participation
7. Product Development Management and Pricing needs/competitive and
profitable
8. Investment Advice and Governance performance measurement
b)
One for choice of element(s) and another for plausible career path. Can get
two if you say you have not yet chosen a path, but then identify most widely useful
elements
c)

One for example and one for comparison with non-actuaries

2

Question 2 [12 marks]

Australian life insurance companies have made significant losses on both group and
individual disability insurance recently. It is reported that Chinese life insurers are
reluctant to begin selling disability insurance because of the subjective nature of the
claims, and the difficulties this causes in ensuring profitability.
a)

Describe the main characteristics of the different types of disability insurance

available in Australia and explain what policyholders needs they fulfil.
(5)

b)

What explanations can be given for the cause of these losses? Explain how
companies should respond to these causes as well the difficulties and risks of
your proposed methods.
(5)

c)

Discuss the extent to which you think that the difficulties and risks you have
raised in part (b) make it uneconomic to write disability insurance business
and that Chinese life insurers would be wise to stay away from the business.
(2)

Marking guide (one mark per line unless otherwise stated)

a) This is book work:
TPD
DI
Group and Individual for both
Workcover .5 as is insurance but policyholder is employer and not life insurance
Yearly renewable term
Inability to work
Need to understand the differences between permanent/temporary total/partial
& when they are paid
b) Need to give a reason why circumstances have changed; this is also a
profitability problem, not liquidity, or one that reinsurance can solve
Poor definitions of disability
Moral hazards
Loose underwriting of group business
Addition of ancillary benefits without extra charges.
Changes to economic environment
Changes to legal environment and willingness to take to court
Increase premiums
selective lapsation
Tighter claims management
Limit benefits
- competitive pressures
c) One mark each for any sensible arguments

Question 3

[12 marks]

Three of the most important secular changes facing the world are in climate (whether
anthropogenic or not), technology and demography in the form of an increasing and
aging population. Discuss the implications of each of these changes to the business
of the general insurance and superannuation industries in Australia.

Marking guide (one mark per line unless otherwise stated)

Climate higher GI claims and catastrophes (2)
carbon taxes and other restrictions effect relevant investment returns
may also effect economy and investment returns
Technology cheaper and more effective marketing
and administration for both industries (3 in total )
even longer life
creative destruction impact on investments
reduce motor accidents & other events?
Increasing population and limited resources
possible impact on investment returns of mines & capital in general
political instability and GI war/terrorism claims
investment returns on mines higher? industry lower? stranded assets?
Longevity superannuation must last longer > bigger industry
greater need for risk management of annuity products
possible different products for health/disability in GI
only
(not for higher prices for older people as it works the other way and then older
people are not allowed to drive when they become a danger)
I gave half a mark for other good ideas in each area if the idea was well put, but
the aim of the question was to get you say something about each area not give an
essay on just one point.

END OF PAPER