Premium Bases Margins MCQs

Welcome to our comprehensive collection of Multiple Choice Questions (MCQs) on Premium Bases Margins, a fundamental topic in the field of IC 92 Actuarial Aspects of Product Development. Whether you're preparing for competitive exams, honing your problem-solving skills, or simply looking to enhance your abilities in this field, our Premium Bases Margins MCQs are designed to help you grasp the core concepts and excel in solving problems.

In this section, you'll find a wide range of Premium Bases Margins mcq questions that explore various aspects of Premium Bases Margins problems. Each MCQ is crafted to challenge your understanding of Premium Bases Margins principles, enabling you to refine your problem-solving techniques. Whether you're a student aiming to ace IC 92 Actuarial Aspects of Product Development tests, a job seeker preparing for interviews, or someone simply interested in sharpening their skills, our Premium Bases Margins MCQs are your pathway to success in mastering this essential IC 92 Actuarial Aspects of Product Development topic.

Note: Each of the following question comes with multiple answer choices. Select the most appropriate option and test your understanding of Premium Bases Margins. You can click on an option to test your knowledge before viewing the solution for a MCQ. Happy learning!

So, are you ready to put your Premium Bases Margins knowledge to the test? Let's get started with our carefully curated MCQs!

Premium Bases Margins MCQs | Page 2 of 7

Discover more Topics under IC 92 Actuarial Aspects of Product Development

Q11.
How is the pricing expense assumption adjusted to reduce the risk of adverse future experience?

a.

By subtracting the margin from the best estimate expense assumption

b.

By multiplying the best estimate expense assumption with the margin

c.

By adding the margin to the best estimate expense assumption

d.

By dividing the best estimate expense assumption by the margin

Discuss
Answer: (c).By adding the margin to the best estimate expense assumption Explanation:The pricing expense assumption is adjusted by multiplying the best estimate expense assumption by one plus the margin. This adjustment helps to account for potential higher expenses than expected, reducing the risk of adverse future experience.
Q12.
How are margins incorporated into the persistency assumption for insurance products?

a.

By adding the margin to the best estimate withdrawal assumption

b.

By subtracting the margin from the best estimate withdrawal assumption

c.

By multiplying the best estimate withdrawal assumption with the margin

d.

By dividing the best estimate withdrawal assumption by the margin

Discuss
Answer: (c).By multiplying the best estimate withdrawal assumption with the margin Explanation:Margins are applied to the best estimate withdrawal assumption by multiplying it with one plus or minus the margins, depending on whether higher or lower withdrawal rates are beneficial for the company, respectively.
Q13.
In the context of pricing, what does the term "stochastic approach" refer to?

a.

Pricing based on constant values for all parameters

b.

Pricing based on the assumption of a risk-free discount rate

c.

Pricing based on a range of possible outcomes from probability distributions

d.

Pricing based on historical data and past experience

Discuss
Answer: (c).Pricing based on a range of possible outcomes from probability distributions Explanation:The stochastic approach involves assuming probability distributions for parameters such as mortality, investment return, and expense inflation, allowing for a range of possible outcomes rather than constant values.
Q14.
How does the third approach in pricing handle risk?

a.

By incorporating margins for risk in individual parameters

b.

By assuming a higher risk discount rate to account for risk

c.

By applying a risk premium to the final premium charged

d.

By using historical data to estimate future risk

Discuss
Answer: (b).By assuming a higher risk discount rate to account for risk Explanation:The third approach in pricing handles risk by assuming a higher risk discount rate, ensuring that the company makes less profit if actual experience deviates from expectations.
Q15.
In the context of risk management in insurance pricing, what is the primary concern regarding assumptions?

a.

Overestimating assumptions leading to increased premiums

b.

Underestimating assumptions resulting in potential losses

c.

Maintaining consistency in assumptions across parameters

d.

Minimizing the variability in assumptions

Discuss
Answer: (b).Underestimating assumptions resulting in potential losses Explanation:The primary concern in risk management is the risk of underestimating assumptions, which could lead to substantial losses for the company.
Q16.
Why is it considered worse to underestimate mortality than to overestimate it in insurance pricing?

a.

Overestimating mortality leads to higher premiums, reducing sales

b.

Underestimating mortality poses a higher risk of substantial losses

c.

Overestimating mortality increases profitability for the company

d.

Underestimating mortality encourages sales of profitable business

Discuss
Answer: (b).Underestimating mortality poses a higher risk of substantial losses Explanation:Underestimating mortality poses a higher risk of substantial losses for the company, as it may result in selling loss-making business and accumulating risk before realizing it.
Q17.
How does an actuary guard against the risk of underestimating mortality in insurance pricing?

a.

By assuming mortality rates lower than best estimates

b.

By selecting the riskiest percentile for pricing

c.

By using a lower risk discount rate

d.

By relying solely on historical mortality data

Discuss
Answer: (a).By assuming mortality rates lower than best estimates Explanation:To guard against the risk of underestimating mortality, an actuary assumes mortality rates higher than best estimates, incorporating margins into the assumptions.
Q18.
What crucial factors determine the size of margins required for pricing in insurance?

a.

The popularity of the insurance product

b.

The complexity of the insurance policy terms

c.

The degree of risk associated with each parameter

d.

The demographic characteristics of the insured population

Discuss
Answer: (c).The degree of risk associated with each parameter Explanation:The size of margins required for pricing in insurance heavily depends on the degree of risk associated with each parameter used in the pricing model.
Q19.
How are margins adjusted in practical scenarios for insurance pricing?

a.

Adjusting individual parameter assumptions followed by risk discount rate adjustment

b.

Direct adjustment to the risk discount rate

c.

Utilizing only the stochastic approach for all parameters

d.

Ignoring risk considerations during pricing

Discuss
Answer: (a).Adjusting individual parameter assumptions followed by risk discount rate adjustment Explanation:In practical scenarios, margins are adjusted by first modifying individual parameter assumptions to account for risks, followed by the application of the risk discount rate to discount cash flows.
Q20.
Why has the use of the second approach, involving probability distributions, increased in insurance pricing?

a.

Due to decreased technological advancements

b.

To simplify the pricing process for actuaries

c.

Because of the ease of running scenarios with technological advancements

d.

To minimize the influence of individual parameter assumptions

Discuss
Answer: (c).Because of the ease of running scenarios with technological advancements Explanation:The use of the second approach, involving probability distributions, has increased in insurance pricing due to advancements in technology, making it easier to run multiple scenarios quickly.
Page 2 of 7