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TUTORIAL 8
MODULE 12:
RISK MANAGEMENT
FRAMEWORKS
Housekeeping
• Exam is on 22 April
o Do the question, do the question, do the questions ….
o Areas to focus on / more past questions
Question 1
Life 2A semester 2 2017 exam Q1c
The MadeUpLand Government is currently working on legislation to develop a framework which would
require trustees of superannuation funds to offer members at retirement a product that protects against
outliving one’s savings. In selecting an appropriate product trustees would need to meet their obligations to
act in the best interests of their members.
TrustMe for Life (TML) sells both life insurance and superannuation business.
In preparation for this legislative change TML Life Company is considering developing a lifetime annuity
that it could offer to its superannuation members as they approach retirement. This product is expected to be
sold to healthy rather than substandard lives.
TML has been selling yearly renewable term (YRT) business for 15 years but has no experience with writing
lifetime annuity business.
TML’s CEO has asked for your help to understand the key features of annuities. The CEO understands you do
not have a lot of experience in this area but is confident you will be able to apply actuarial principles and your
knowledge of pricing to answer his questions.
Question 2
Life 2A semester 1 2016 exam Q1b
MakeGood Life is a life insurer that has been selling investment linked business for 30 years. In the last few years it has
experienced the following problems:-
Your role as Head of Operations involves overseeing the calculation of unit prices as well as administration and customer service.
It has just been brought to your attention that a dividend payment included in net asset value (NAV) on 01/04/2019 for $21m was
manually entered incorrectly as $12m meaning unit prices from this date are incorrect.
MakeGood Life’s newly appointed Managing Director, who is also new to life insurance, says
“a history of unit pricing errors suggests an issue with people, processes or systems. I would like to explore the option of
outsourcing policy administration and unit pricing to an external third-party provider.”
Explain what risks relating to people, processes and systems MakeGood would be exposed to if it outsources its administration
and unit pricing functions and describe what mitigating action could be taken to manage these risks?