Pricing of Products II MCQs

Welcome to our comprehensive collection of Multiple Choice Questions (MCQs) on Pricing of Products II, 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 Pricing of Products II 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 Pricing of Products II mcq questions that explore various aspects of Pricing of Products II problems. Each MCQ is crafted to challenge your understanding of Pricing of Products II 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 Pricing of Products II 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 Pricing of Products II. 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 Pricing of Products II knowledge to the test? Let's get started with our carefully curated MCQs!

Pricing of Products II MCQs | Page 4 of 6

Discover more Topics under IC 92 Actuarial Aspects of Product Development

Q31.
What is the purpose of conducting profit testing in the cash flow method?

a.

To ensure the insurer incurs losses

b.

To determine the expected rate of return on policies

c.

To assess the effectiveness of investment returns

d.

To evaluate the profitability of policies under different scenarios

Discuss
Answer: (d).To evaluate the profitability of policies under different scenarios Explanation:The purpose of conducting profit testing in the cash flow method is to evaluate the profitability of policies under different scenarios.
Q32.
What is the primary purpose of profit testing in insurance pricing?

a.

To maximize the premiums charged to policyholders

b.

To ensure that the insurer incurs losses

c.

To evaluate whether the resultant premiums meet set profit criteria

d.

To minimize the risk discount rate used in discounting cashflows

Discuss
Answer: (c).To evaluate whether the resultant premiums meet set profit criteria Explanation:The primary purpose of profit testing in insurance pricing is to evaluate whether the resultant premiums meet set profit criteria.
Q33.
What does pricing in insurance entail?

a.

Only determining premiums

b.

Determining premiums, guaranteed additions, and bonuses in traditional products

c.

Calculating charges in unit-linked products

d.

All of the above

Discuss
Answer: (d).All of the above Explanation:Pricing in insurance entails not only determining premiums but also includes determining premiums, guaranteed additions, and bonuses in traditional products, as well as calculating charges in unit-linked products.
Q34.
How is the cost of reserves accounted for in insurance pricing?

a.

By adding it as a separate expense item

b.

By subtracting it from expected outgo

c.

By considering it as an item in expected outgo

d.

By ignoring it in the pricing calculation

Discuss
Answer: (c).By considering it as an item in expected outgo Explanation:The cost of reserves is accounted for in insurance pricing by considering it as an item in expected outgo.
Q35.
What is the purpose of considering the cost of capital in insurance pricing?

a.

To increase the insurer's profitability

b.

To reduce the insurer's liabilities

c.

To ensure that shareholders receive a higher return on investment

d.

To account for the capital tied up due to in-force policies and its lower earning potential compared to the risk discount rate

Discuss
Answer: (d).To account for the capital tied up due to in-force policies and its lower earning potential compared to the risk discount rate Explanation:The purpose of considering the cost of capital in insurance pricing is to account for the capital tied up due to in-force policies and its lower earning potential compared to the risk discount rate.
Q36.
What is the distinction between physically real cashflow and notional cashflow in insurance pricing?

a.

Physically real cashflow involves only tangible monetary transactions, while notional cashflow involves intangible exchanges.

b.

Physically real cashflow includes premiums and investment income, while notional cashflow includes payments to policyholders, commission to agents, and expenses.

c.

Physically real cashflow represents actual monetary exchanges, while notional cashflow represents hypothetical or accounting transactions.

d.

Physically real cashflow encompasses expenses and taxes, while notional cashflow encompasses premiums and investment income.

Discuss
Answer: (c).Physically real cashflow represents actual monetary exchanges, while notional cashflow represents hypothetical or accounting transactions. Explanation:The distinction between physically real cashflow and notional cashflow in insurance pricing is that physically real cashflow represents actual monetary exchanges, such as premiums and investment income, while notional cashflow represents hypothetical or accounting transactions, such as changes in reserves.
Q37.
How is the establishment of reserves funded in a life insurance company?

a.

By deducting reserves from the company's free assets

b.

By contributing money to reserves from the cashflow or other sources of capital

c.

By borrowing funds from external sources

d.

By using investment income exclusively

Discuss
Answer: (b).By contributing money to reserves from the cashflow or other sources of capital Explanation:The establishment of reserves in a life insurance company is funded by contributing money to reserves from the cashflow or other sources of capital.
Q38.
What role does investment income from supervisory reserves play in the profit flow of an insurance company?

a.

It decreases the overall profit flow

b.

It increases the company's liabilities

c.

It contributes positively to the profit flow

d.

It has no impact on the profit flow

Discuss
Answer: (c).It contributes positively to the profit flow Explanation:Investment income from supervisory reserves contributes positively to the profit flow of an insurance company.
Q39.
What is a profit criterion in insurance?

a.

A mathematical formula used to calculate insurance premiums

b.

A measure of the relative efficiency of contracts with different net cash flow streams

c.

A method for determining the market value of insurance policies

d.

An indicator of the financial stability of an insurance company

Discuss
Answer: (b).A measure of the relative efficiency of contracts with different net cash flow streams Explanation:A profit criterion in insurance is a measure of the relative efficiency of contracts with different net cash flow streams. It helps in evaluating the profitability of various insurance products.
Q40.
How is the net cash flow stream of a contract defined?

a.

It is the total amount of premiums collected over the lifetime of the contract

b.

It is the sequence of net cash flows (profit) over time from inception to termination of the contract

c.

It represents the expenses incurred by the insurance company during the contract period

d.

It is the sum of all claims paid out by the insurance company during the contract period

Discuss
Answer: (b).It is the sequence of net cash flows (profit) over time from inception to termination of the contract Explanation:The net cash flow stream of a contract is defined as the sequence of net cash flows (profit) over time from inception to termination of the contract. It represents the profitability of the contract over its lifetime.
Page 4 of 6