MA922: Actuarial Risk Management 1 Autumn 2018

Marked Assessment 2 (IR, PM)

Deadline: 4pm Thursday 17 January 2019

YOU SHOULD SUBMIT THIS ASSESSMENT ON TURNITIN.

1. Insurer with low solvency

(a) Explain what is meant by capital, and how an insurance [5]

company, which is not subject to Solvency II requirements,
may calculate the amount of capital it needs to hold.

(b) Whitfield Insurance is a proprietary insurance company with a [15]

low solvency margin. It is considering its pricing strategy for a
new product.

The Actuarial Department has calculated pricing by modelling

expected claims costs and expenses and adding a profit
margin. The marketing department has suggested charging
5% less than the average of the 3 leading companies in the
market.

Discuss the factors Whitfield Insurance will consider when

setting its pricing strategy.

Max 500 words

(c) Explain how Whitfield Insurance can use profit testing [6]
modelling as an aid to setting the price of this product.

(d) Discuss the approaches Whitfield Insurance could take to the [5]
design of the new product and its pricing, in order to minimise
the capital requirements for this product.

(e) Explain the approaches Whitfield Insurance could use to [4]

increase the amount of capital in the business.

Total 35 marks

1
2. Principles for assumption-setting

You are presenting the preliminary results of the actuarial valuation [10]
for the XYZ DB Pension Scheme as at 1 October 2018. Section C of
your presentation sets out the key factors you have looked at in
setting the assumptions to be used in this valuation.

Discuss briefly the key factors you would take into account when
setting assumptions to calculate the actuarial value of the liabilities
under the pension scheme.

Total 10 marks

Max 300 words

3. Liability calculations

You are advising a client on setting up a new defined benefit pension [5]
scheme. A major part of the work involves estimating the costs
involved in providing the benefits under the scheme.

Explain why you would carry out these calculations using both a best
estimate set of assumptions and a prudent set of assumptions.

Total: 50 marks