*7最权威的北美精算师*7考试辅导大纲资料和动态新闻尽在高顿网校！就如SOA精算师考试——北美November2003Course8F（三）
　　9. (4 points) Martha, the CEO of a large life insurer, has contacted you, a consulting
　　actuary, with concerns regarding fair value accounting.
　　(a) Describe the differences between fair value and entity specific valuations.
　　(b) Explain the impact that a downgrade in the firm’s credit standing would have
　　under both valuation methodologies.
　　(c) Martha notes that the market value of many of the company’s liabilities is not
　　available. Describe a fair value accounting methodology that can be used for
　　valuation purposes under these circumstances and the principles underlying this
　　methodology.
　　COURSE 8: Fall 2003 - 8 - GO ON TO NEXT PAGE
　　Finance
　　Afternoon Session
 
　　10. (14 points) “Hemlock Inc. poisons investors as it files Chapter 11 bankruptcy - $2
　　billion of corporate bond defaults – stock is delisted.”
　　That was the headline that three business people faced as they scanned the business
　　section of the morning paper.
　　Dominic is a Portfolio Manager for the Parthenon Investment Grade Bond Fund, a fund
　　that attracts investments from smaller insurance companies. Dominic had relied on
　　private sector watchdogs when he purchased newly issued Hemlock Inc. debt for the fund
　　just six months ago. At that time, and as recently as last week, various NRSROs had
　　rated Hemlock BBB or its equivalent.
　　Isabel is the head of the Investment Committee for Mt. Olympus Insurance Company
　　(MOIC), Parthenon’s largest investor. MOIC’s liabilities consist of 75% whole life
　　insurance and 25% fixed deferred annuities. In addition to a significant investment in
　　Parthenon, MOIC has additional Hemlock debt and a small stock position in Hemlock.
　　As a result, MOIC had greater exposure to Hemlock than its peers. MOIC is currently
　　rated B++ by A.M. Best. A review meeting with A.M. Best is scheduled for later in the
　　week due to the arrival of a new CEO at MOIC and dwindling life insurance sales.
　　Nicholas, the Chief Actuary for MOIC, chairs the committee that meets with and
　　responds to requests by the insurance rating agencies. He received a phone call this
　　morning from the MOIC analyst at Standard & Poor’s, who asked for a meeting with the
　　MOIC committee next week to discuss the impact of the Hemlock bankruptcy.
　　(a) (6 points) Dominic had a voice mail from Isabel upon arrival at his desk. She
　　demands to know how his fund could be holding such a large position in a
　　company that has gone bankrupt.
　　Formulate a response to Isabel that includes the following:
　　(i) Explain what a rating issued by an NRSRO means.
　　(ii) Explain how an NRSRO collects and uses information to arrive at a rating.
　　(iii) Describe the shortcomings of NRSROs that could explain how Hemlock
　　was rated investment grade at the time of its default.
　　(iv) Describe attempts by NRSROs to mitigate these shortcomings.
　　(b) (4 points) Nicholas grills Isabel on her conversation with Dominic before racing
　　upstairs to brief the new CEO on the upcoming meeting with A.M. Best.
　　(i) Explain how A.M. Best arrives at a company rating.
　　(ii) Suggest steps that MOIC can take to manage the ratings process with
　　A.M. Best.
　　COURSE 8: Fall 2003 - 9 - GO ON TO NEXT PAGE
　　Finance
　　Afternoon Session
　　10. Continued
　　(iii) Predict the action that A.M. Best will take with respect to MOIC’s rating
　　and the basis for that action.
　　(iv) Predict possible ramifications of A.M. Best’s action.
　　(c) (4 points) The new CEO’s bonus is partially dependent on maintaining or
　　improving MOIC’s ratings and partially dependent on revamping MOIC’s
　　dwindling life insurance sales, which are down 30% from three years ago.
　　Focusing on the upcoming Standard & Poor’s meeting, he asks Nicholas to
　　determine the impact of recent events.
　　You are given the following tables of information regarding MOIC, updated to
　　reflect the Hemlock event.
　　ASSET % OF PORTFOLIO
　　Cash 5%
　　U.S. government securities 15%
　　NAIC 1 – public corporate bonds 25%
　　NAIC 2 non-144(a) private placements 30%
　　Non-investment grade bonds 5%
　　Common stock 20%
　　YEAR ANNUAL EARNINGS
　　ADEQUACY RATIO
　　2002 170%
　　2001 190%
　　2000 185%
　　1999 200%
　　1998 225%
　　(i) Describe the impact of the Hemlock event on MOIC under the Standard &
　　Poor’s Capital Adequacy model.
　　(ii) Describe how Standard & Poor’s would view MOIC’s liquidity.
　　(iii) Calculate the current weighted average Earnings Adequacy Ratio and
　　comment on the prospects for 2003’s Earnings Adequacy Ratio. Show
　　your work.
　　COURSE 8: Fall 2003 - 10 - GO ON TO NEXT PAGE
　　Finance
　　Afternoon Session
　　高顿网校之生活感悟：喂，你可曾听说才思也许能在青春年少时获得，智慧也许会在腐朽前成熟。 —— 爱默生