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高顿网校的小编在这里给奋斗在北美精算师战场上的亲们作揖啦。SOA真题2014年Course8E讲义——北美精算师考试SOA，请慢慢看。
COURSE 8: Fall 2005 - 1 - GO TO NEXT PAGE
COURSE 8: Fall 2005 - 1 - GO TO NEXT PAGE
Finance and Enterprise Risk Management; Core Segment
Morning Session
**BEGINNING OF EXAMINATION**
FINANCE AND ENTERPRISE RISK MANAGEMENT; CORE SEGMENT
MORNING SESSION
Questions 1-2 pertain to the Case Study.
Each question should be answered independently.
1. (13 points) Kelly Ratings recently completed their review of Zoolander and sent you the
results, which recommend a downgrade in the rating. Tomas Lyon has asked you to
provide a report about this situation.
You have gathered the following information as of December 31, 2004:
Term net amount at risk is $3,000 million.
Whole Life net amount at risk is $1,500 million.
The general account annuity business is 100% GICs.
Prepare a report that addresses the following points.
(a) (2 points) Describe the roles of rating agencies and how they serve the securities
markets and the public.
(b) (1 point) Describe how rating agencies develop and use liquidity ratios in
assessing a firm’s financial strength.
(c) (4 points) Calculate Zoolander’s capital adequacy ratio as of December 31, 2004,
based on Kelly’s rating methodology.
(d) (4 points) Describe aspects of Kelly’s ratings process and models that could be
considered inferior to those used by Standard & Poors, Moody’s and Fitch
Ratings.
(e) (2 points) List the requirements to become a nationally recognized statistical
ratings organization, as defined in the SEC’s proposed rule, and determine
whether Kelly meets those requirements.
COURSE 8: Fall 2005 - 2 - GO TO NEXT PAGE
Finance and Enterprise Risk Management; Core Segment
Morning Session
Questions 1 - 2 pertain to the Case Study.
Each question should be answered independently.
2. (10 points) Tomas Lyon, Zoolander’s CEO, has asked to speak with you about two
concerns: liquidity risk and credit risk.
(a) (2 points) Describe the forms of liquidity risk faced by insurance companies and
the importance of maintaining adequate liquidity.
(b) (1 point) Comment on Zoolander’s current liquidity position.
(c) (4 points) Lyon is concerned with a drop in the quality of the bond portfolio. He
asks you to build a model to quantify the potential exposure over the next year
due to credit risk. Lyon wants an expectation as well as a “worst case scenario”
based on a confidence interval of 99%.
You have recently become familiar with the CreditMetrics approach to modeling
credit risk. Outline a plan to develop a model for Zoolander, including the major
calculations and assumptions needed.
(d) (3 points) Lyon wants to consider securitization as a means of reducing credit and
liquidity risks and as a management tool.
Explain the advantages to Zoolander of securitizing:
i. Private Placement Bonds
ii. A Closed Block of Insurance Liabilities
COURSE 8: Fall 2005 - 3 - GO TO NEXT PAGE
Finance and Enterprise Risk Management; Core Segment
Morning Session
3. (12 points) Your company, New West Life, has been seeking expansion into the Asian
market. New West’s CEO has negotiated a joint venture opportunity with a Chinese
firm, Orient Life.
The joint venture will sell investment products to the expanding Chinese middle class.
Each of the two partners will have 50% ownership of the venture. New West will invest
$600 million, and Orient Life will invest $400 million. Neither partner will be able to
exit the venture during the first five years.
In addition, New West will have the option, at the end of five years, to buy Orient Life’s
share of the partnership, for $550 million.
You have assessed that the joint venture has a 50% probability of increasing in value to
$2,150 million at the end of five years and a 50% probability of decreasing in
value to
$600 million at the end of five years. There are no interim cash flows expected in the
five year period.
You are given the following data:
New West Life weighted average cost of capital (WACC): k = 10%
New West Life fe Beta: β NW = 1.2
Joint Venture Beta: β JV = 0.8
Market Return: rm = 9%
Risk-free Rate: rf = 4%
The CEO of New West has asked you to review the joint venture opportunity.
(a) Determine the appropriate risk-adjusted discount rate to use to assess this
opportunity.
(b) Assess the opportunity using a net present value (NPV) approach.
(c) Re-*uate the joint venture using a contingent claims analysis (CCA) approach.
(d) Explain to the CEO why the NPV and CCA results are different.
(e) Recommend to the CEO whether or not New West should pursue this
opportunity. Justify your response.
COURSE 8: Fall 2005 - 4 - GO TO NEXT PAGE
Finance and Enterprise Risk Management; Core Segment
Morning Session
4. (8 points) You are the Chief Actuary of Global Insurance, a public company selling only
Universal Life, with divisions located in the U.S., Canada and Australia. Your actuaries
have discovered pricing inadequacies on the in-force products. Global’s CFO is very
interested in the volatility of the company’s results due to both the foreign exchange
markets and the pricing issues.
(a) Describe the income-based reserve methodology that Global must follow in each
jurisdiction in which it is conducting business. Include in your description the
accounting implications of the pricing inadequacies and their impact on the
current year’s country-specific income statements.
(b) Outline a report for the CFO that includes the following:
i. The foreign exchange risks that Global has assumed.
ii. Reasons why Global might consider hedging those risks.
iii. Hedging strategies and instruments that may be used for currency
hedging.
COURSE 8: Fall 2005 - 5 - GO TO NEXT PAGE
Finance and Enterprise Risk Management; Core Segment
Morning Session
5. (5 points) You have been hired by Salmon Inc. to provide investment strategy advice for
Salmon’s Defined Benefit Plan.
Salmon’s management is concerned about the accuracy of the plan surplus calculation in
light of volatility of the surplus over the past two years.
You have been provided the following plan information:
Plan Assets $240 million
Plan Liabilities $250 million
The plan’s current investment strategy, valuation and reporting are:
? Required rate of return on assets is 7%. Given this constraint, minimize asset
volatility.
? Liability risk is determined using Monte Carlo testing.
? Discount rate for liabilities tied to expected return on assets
? The annual report to Management provides a best estimate, 20-year funding level
forecast, measured on a GAAP basis.
(a) Describe weaknesses in the current strategy, valuation and reporting.
Recommend improvements to better manage market-related risks of the pension
plan.
(b) Outline methods to control pension plan risks that are not market related.
COURSE 8: Fall 2005 - 6 - GO TO NEXT PAGE
Finance and Enterprise Risk Management; Core Segment
Morning Session
6. (8 points) Moby Life is considering selling an in-force block of term insurance. You are
the appointed actuary of the company and have been asked by the CEO to estimate the
fair value of the block as of December 31, 2005.
Future gross cash flows have been projected as follows:
2006 2007 2008
Premiums 500 490 486
Expenses & Commissions 75 74 73
Death Claims 64 66 66
Assume there are no further cash flows beyond 2008.
Moby Life reinsures 50% of the business under a coinsurance treaty and receives 10% of
ceded premium as a reinsurance allowance.
You have been provided with the following informa
tion:
Risk-free rate: 4%
Rate of return on assets: 8%
Cost of capital: 15%
Benchmark equity to liability ratio: 10%
Effective tax rate: 35%
(a) (2 points) Describe the difference between a fair value methodology and U.S.
GAAP for valuation of policy liabilities.
(b) (4 points) Use a cost-of-capital approach to determine the fair value of the policy
liabilities for the term block of business as of December 31, 2005. Assume all
cash flows occur at mid-year. Show your work.
(c) (2 points) The CEO would like to know how much this block of business is worth
if it is kept with Moby Life rather than being sold. Suggest an alternate measure
for valuing the business if it is retained by Moby Life. Describe the differences
between this measure and the fair value methodology in (b).
COURSE 8: Fall 2004 - 7 - STOP
Finance and Enterprise Risk Management; Core Segment
Morning Session
7. (4 points) Allegro Annuity is an insurance company domiciled in the U.S. that issues a
full range of fixed annuity products. Starting this year, Allegro is required to comply
with the cash flow testing C-3a risk-based capital requirement. The company has hired
you to help them understand the impact of this requirement.
(a) Compare the C-3a cash flow testing requirement with the factor-based C-3a
requirement.
(b) Allegro currently holds statutory reserves that are calculated using the CARVM
methodology and meet minimum regulatory standards.
Explain why Allegro may still be required to hold additional capital under the C-
3a cash flow testing requirements.
**END OF EXAMINATION**
MORNING SESSION
COURSE 8: Fall 2005 - 8 - GO ON TO NEXT PAGE
Enterprise Risk Management Segment
Afternoon Session
**BEGINNING OF EXAMINATION**
ENTERPRISE RISK MANAGEMENT SEGMENT
AFTERNOON SESSION
Beginning With Question 8
. (8 points) Desperate Housefires (DH) is a property and casualty (P&C) insurance
company specializing in home insurance coverage. Smash and Cash (SC) is a property
and casualty insurance company specializing in auto insurance.
In Our Arms (IOA) is an insurance holding company that wishes to purchase a P&C
company. IOA wants to *uate the insolvency risk of DH and SC.
IOA plans to implement the following initiatives in the acquired company:
? The target for the expected policyholder deficit risk measure will be 2.5% or
below.
? Dynamic Financial Analysis will be instituted.
You are given the following data:
Desperate Housefires Smash and Cash
Assets: 100 75
Scenario px Desperate Housefires
Expected Loss
Smash and Cash
Expected Loss
1 0.2 50 50
2 0.6 100 70
3 0.2 150 100
(a) For DH and SC:
i. Calculate the expected policyholder deficit for each company.
ii. Compare the risk of insolvency of the two companies.
iii. Determine the level of additional assets which each company would
need to have in order to maintain the target expected policyholder
deficit required by IOA.
iv. Calculate the capital held by each firm, assuming the additional assets,
if any, determined in (iii) are contributed to each company.
(b) Describe the purposes and uses of Dynamic Financial Analysis.
(c) Describe the elements that should be considered in designing a Dynamic
Financial Analysis system for IOA.
COURSE 8: Fall 2005 - 9 - GO ON TO NEXT PAGE
Enterprise Risk Management Segment
Afternoon Session
9. (6 points) Windy City Life Insurance Company sells Universal Life and Term insurance
to the affluent market. The UL product is a market leader, mainly because it utilizes
state-of-the-art and proprietary investment management strategies. The company’s sales
have been strong over the last three years and are on pace for another record year.
However, the large amount of new business has
depleted the company’s capital base.
The senior management team at Windy City has identified growth opportunities for the
organization, but they need to free up capital in order to pursue those opportunities.
Management is contemplating separate financial reinsurance transactions for each of the
two lines of business as a way to provide surplus relief. Because the company has never
used reinsurance in the past, Windy City would like to keep the reinsurance structure as
simple as possible.
Windy City has hired you as a consultant on development of a financial reinsurance
program.
(a) (3 points) Describe the structure of three alternative forms of financial
reinsurance and the products for which each is typically used. Include the
advantages and disadvantages of each form.
(b) (2 points) Taking into account Windy City’s preference for a simple structure,
recommend an appropriate financial reinsurance plan for:
i. The Term line of business
ii. The Universal Life line of business
Defend your recommendations.
(c) (1 point) Explain uses of financial reinsurance other than surplus relief.
COURSE 8: Fall 2005 - 10 - GO ON TO NEXT PAGE
Enterprise Risk Management Segment
Afternoon Session
10. (6 points) Nirvana Novelties is a theme-based organization selling convenience items at
gas stations and truck stops throughout North America. Nirvana is a privately held firm
with no debt.
You are given the following current information for Nirvana:
Annual earnings: $7.5 million
Assets: $225 million
Liabilities: $160 million
You are given the following assumptions:
Market Capitalization Rate: 10%
Effective Tax Rate: 0%
Cost of Debt: 9%
At a recent trade show in Las Vegas, Nirvana became interested in expanding into themebased
key chains. Assume that future investment in the key chain market generates a
15% return and that the net present value of this investment will be $50 million.
(a) Calculate Nirvana’s book value, tangible value, and the price-to-earnings ratio,
prior to expansion and leverage.
(b) Calculate the updated price-to-earnings ratio for Nirvana with 50% of the
expansion cost financed by debt.
(c) Describe the impact on franchise value of assuming an effective tax rate greater
than zero.
(d) One of your colleagues has asserted that, “regardless of a firm’s financial
structure, the fundamental basis for high P/Es is access to substantial franchise
investment.”
Defend or refute that statement.
COURSE 8: Fall 2005 - 11 - GO ON TO NEXT PAGE
Enterprise Risk Management Segment
Afternoon Session
Questions 11-12 pertain to the Case Study.
Each question should be answered independently.
11. (8 points) As the new CFO of Zoolander, you call Peter Fish, the CIO, to discuss his new
derivative initiative. You share some of your concerns regarding oversight and risk
management with respect to this initiative. Peter assures you that his team would be
receptive to audit reviews but does not want to see the team constrained in their day-today
operations and in their ability to achieve their profit objectives.
(a) Identify the potential operational risk exposures that are contained in the proposed
derivative initiative.
(b) Reference the Group of Thirty (G-30) recommendations, and for each suggest
changes to Zoolander’s derivative initiative that would reduce operational risk
concerns.
12. (6 points) Zoolander is required to comply with Section 404 of the Sarbanes-Oxley Act
by submitting an annual report with respect to internal control over financial reporting.
In preparation, the Board of Directors has asked you for the following items.
(a) (1 point) Identify the specific assurances that must be made with respect to
internal control over financial reporting under the Act.
(b) (2 points) Identify
other specific areas the Board of Directors should question and
discuss with management to determine if internal controls over financial reporting
are sound and effective.
(c) (3 points) Prepare a response to three of the questions you identified in (b) as
they apply to Zoolander, citing specific examples to support your answer.
COURSE 8: Fall 2005 - 12 - GO ON TO NEXT PAGE
Enterprise Risk Management Segment
Afternoon Session
13. (10 points) Your company, Global Dynamic Life & Annuity (GL&A), is currently
considering offering an Equity-Indexed Annuity product. There are four proposed
designs under consideration, each employing a different index methodology:
i. Point-to-Point (PTP)
ii. Compound Annual Ratchet (CAR), with a 2% floor
iii. Simple Annual Ratchet (SAR), with a 0% floor
iv. High Water Mark (HWM).
The product being considered is a 5-year single premium $1,000 contract with a
guarantee of 2% on 93% of the premium. For each equity-linked option, a participation
rate of 65% will be used.
You are provided with the following additional data and information for modeling
purposes:
? Risk-free rate of interest for next five years: 5%
? Returns on equity-linked index for next five years:
Year 1: 7%
Year 2: 1%
Year 3: 6%
Year 4: 10%
Year 5: -18%
? Expenses are assumed to be 1.5% of premium.
(a) (6 points) Using the data and assumptions provided:
i. Calculate the payoff at the end of the fifth year under each of the four
contract designs. Show your work.
ii. Calculate the percentage of the premium that would be available to pay
for the indexation benefit. Show your work.
(b) (2 points) For each proposed contract design, describe the approach you would
use to determine whether the proposed design allows for sufficient premiums to
purchase call options for the index guarantee. You do not need to complete the
calculations.
(c) (2 points) Rank the four methodologies according to your expectations of the
option cost under each indexation method and explain your rationale.
COURSE 8: Fall 2005 - 13 - GO ON TO NEXT PAGE
Enterprise Risk Management Segment
Afternoon Session
14. (10 points) Your company, Jabba and Associates, has a client whose entire holdings are
invested in two stocks:
Number of Shares Current Price per Share Current Value
Stock A (SA) 1 million $10.00 $10,000,000
Stock B ( ) SB 2 million $5.00 $10,000,000
Total $20,000,000
You have been provided the following data:
Variance-Covariance: Threshold Limits as a Function
(based on daily historical observations) of the Confidence Level:
Stock A Stock B 99.97% -3.43
Average 0.10% 0.05% 99.87% -3.00
Standard Deviation 2.00% 1.00% 99% -2.33
Correlation Coefficient ρ A,B = 0.2 95% -1.65
Historical Simulation:
Monte Carlo Simulation:
Rank 10-day Returns Rank 10-day Returns
100 -9.6% 1000 -15.7%
99 -8.9% 999 -15.3%
98 -7.9% : :
: : 991 -14.9%
90 -7.1% 990 -14.7%
89 -6.9% 989 -14.4%
: : : :
50 1.1% 500 0.8%
: : : :
11 3.4% 11 3.2%
10 3.7% 10 3.5%
: : : :
2 8.2% 2 9.1%
1 9.0% 1 10.4%
COURSE 8: Fall 2005 - 14 - GO ON TO NEXT PAGE
Enterprise Risk Management Segment
Afternoon Session
14. Continued
(a) (6 points) Calculate VaRs at the 99th percentile on a
comparable basis under each
of the following approaches. Show your work.
i. Variance – Covariance
ii. Historical Simulation
iii. Monte Carlo
(b) (2 points) Explain to your client how to interpret VaR and why VaR may vary
using different approaches.
(c) (2 points) Describe the pros and cons of each of the above three VaR approaches.
COURSE 8: Fall 2005 - 15 - STOP
Enterprise Risk Management Segment
Afternoon Session
15. (6 points) Darth Insurance Company is considering selling a one-year segregated fund
maturity guarantee. The underlying fund, Equity Asset Fund, is an index fund whose
returns track the S&P 500.
Data and assumptions associated with this product are:
? Current unit price of Equity Asset Fund: $1,050
? Guaranteed fund value at the end of the year: $1,092
? Risk-Free Rate: 5% per year
? Downward movement nt factor for Equity Asset Fund: d = 0.9
? Upward movement factor for Equity Asset Fund: u = 1.1
? The Equity Asset Fund returns have a lognormal distribution.
(a) Using a one-period binomial tree, determine the composition and value of the
risk-free hedge portfolio at the end of year one. Show your work.
(b) Re-calculate the value of the hedge portfolio at the end of year one assuming
management fees are 1%. Show your work.
(c) Explain why the hedge calculated is unlikely to be completely effective.
**END OF EXAMINATION**
AFTERNOON SESSION
高顿网校之考试励志：要抒写自己梦想的人，反而更应该清醒。
高顿网校之考试励志：要抒写自己梦想的人，反而更应该清醒。
