ALU 202 CHAPTER 1 UPDATED ACTUAL QUESTIONS
AND CORRECT ANSWERS
Question:
1. Product Pricing Process
Answer:
The cost of Raw Materials is not known at the time of determining the price of
insurance. It is based on actuarially supportable information gained from past
experience
Question:
2. Strategy Determination in Product Development
Answer:
The organization must have the skill set to analyze the risk being considered and
must be realistic about the underlying cost of different offerings.
Question:
3. Profitability Expectation
Answer:
Key component for product offering, one of the least advanced topics in product
development. Life insurance is very cost sensitive and thought to be more of a
Commodity.
Question:
4. 4 types of risk that must be covered by allocated surplus
in product development and pricing
Answer:
Asset Risk, Insurance risk, Interest rate risk and business risk
Question:
5. Asset Risk
Answer:
the risk that the assets supporting the product line lose some or all of their value
Question:
6. Insurance Risk
Answer:
The risk that the price for the insurance product is inadequate. Caused by mis-
estimation of expected mortality
, Question:
7. Interest Rate Risk
Answer:
The risk that assets must be sold at a loss in order to meet the case needs of the
policyholder.
Question:
8. Business Risk
Answer:
This is a catch all category of risk management to cover anything not included in
first 3 category.
Question:
9. Underwriting discipline
Answer:
Is key to building blocks in product design and each one ahs secondary impact
on the other.
Question:
10. Building Block that do not interact with underwriting in
pricing a product
Answer:
Mortality, lapse rates, expense levels, interest rates,
Question:
11. Mortality affect on policy development
Answer:
The biggest cost in Life insurance product
Question:
12. Stringent underwriting causes two things to happen
Answer:
The expected mortality decreases on the block of policies which results in lower,
more competitive prices and fewer people will qualify under the more stringent
requirements
Question:
13. Actuarially Supportable
Answer:
Means that both the expected level and relative mortality differences have been
demonstrated through time.
AND CORRECT ANSWERS
Question:
1. Product Pricing Process
Answer:
The cost of Raw Materials is not known at the time of determining the price of
insurance. It is based on actuarially supportable information gained from past
experience
Question:
2. Strategy Determination in Product Development
Answer:
The organization must have the skill set to analyze the risk being considered and
must be realistic about the underlying cost of different offerings.
Question:
3. Profitability Expectation
Answer:
Key component for product offering, one of the least advanced topics in product
development. Life insurance is very cost sensitive and thought to be more of a
Commodity.
Question:
4. 4 types of risk that must be covered by allocated surplus
in product development and pricing
Answer:
Asset Risk, Insurance risk, Interest rate risk and business risk
Question:
5. Asset Risk
Answer:
the risk that the assets supporting the product line lose some or all of their value
Question:
6. Insurance Risk
Answer:
The risk that the price for the insurance product is inadequate. Caused by mis-
estimation of expected mortality
, Question:
7. Interest Rate Risk
Answer:
The risk that assets must be sold at a loss in order to meet the case needs of the
policyholder.
Question:
8. Business Risk
Answer:
This is a catch all category of risk management to cover anything not included in
first 3 category.
Question:
9. Underwriting discipline
Answer:
Is key to building blocks in product design and each one ahs secondary impact
on the other.
Question:
10. Building Block that do not interact with underwriting in
pricing a product
Answer:
Mortality, lapse rates, expense levels, interest rates,
Question:
11. Mortality affect on policy development
Answer:
The biggest cost in Life insurance product
Question:
12. Stringent underwriting causes two things to happen
Answer:
The expected mortality decreases on the block of policies which results in lower,
more competitive prices and fewer people will qualify under the more stringent
requirements
Question:
13. Actuarially Supportable
Answer:
Means that both the expected level and relative mortality differences have been
demonstrated through time.
