STRATHMORE INSTITUTE OF MATHEMATICAL SCIENCES

BBS ACTUARIAL SCIENCE

END OF SEMESTER EXAMINATION
BSA 4125: ACTUARIAL LIABILITY MANAGEMENT

DATE: 24/07/2023 TIME: 2 Hours

INSTRUCTIONS

1) Answer question one and any other two questions

2) Question one is compulsory and carries 30 marks
3) All other questions carry 20 marks each
Question 1
A

[10]

[Total 14]

[Total 30]
Question 2
A
A fellow student has said to you: “The recent oil price volatility has been caused by derivatives. If all
derivatives were banned, then the price would be less volatile, and this will reduce risk for users of oil.”

Comment on this statement. [4]

B
Explain the reasoning behind the Actuarial Profession issuing Guidance Notes. [5]

C
A developing country has a rapidly expanding insurance industry. As all the insurance companies are
relatively small, they use reinsurance extensively. The regulators are concerned that 80% of the
reinsurance market is dominated by one very large reinsurance company.

i) Explain the possible concerns of the regulators. [4]

ii) Explain how the regulators can reduce these concerns, giving the advantages and
disadvantages of the possible actions that can be taken. [7]

[Total 20]
Question 3
A
For valuing assets and liabilities for regulatory purposes of a pension scheme in the country of Neuro the
discount rate that is calculated for the liabilities is the yield on Government bonds of suitable duration.

The pension industry has proposed that the discount rate to be used should be that of the bonds actually
held by the pension funds to match the pension liabilities.

Discuss the suitability of this proposal for valuing the liabilities of a pension scheme. [7]

B
i) Explain why insurance companies want smooth profits. [4]

ii) Explain why using quota-share reinsurance may reduce the volatility of profits for an
insurance company that sells domestic property insurance. [5]

iii) Explain why using risk excess of loss reinsurance may reduce the volatility of profits for
an insurance company that sells liability insurance [4]

[Total 20]
Question 4

A
Explain the balance that must be struck in the monitoring stage of the actuarial control cycle.
[7]

(Total 20)
Question 5

[10]

(Total 20)