FSA Fellow of the Society of Actuaries Exam
Question 1
(A) To ensure immediate payout of claims to beneficiaries (B) To cover the present value of future obligations less the present value of future premiums (C) To maximize the insurer’s profit margin (D) To manage the insurance company’s investment portfolio
Correct Answer: (B)
Explanation: Life insurance reserves are computed as the present value of future policy benefits minus the present value of future premiums. This ensures sufficient funds are held to meet policyholder obligations when they come due.
Question 2
(A) Annual interest rate (B) Force of interest (C) Probability of death at each age (D) Claim severity factor
Correct Answer: (C) 1 / 4
FSA Fellow of the Society of Actuaries Exam
Explanation: Mortality tables focus on probabilities of death (or survival) for each age. These probabilities underpin calculations for premiums, reserves, and other life insurance projections.
Question 3
(A) The expense ratio for maintaining a life policy (B) The discounted value of past premiums (C) The gap between underwriting income and claims costs (D) The present value of all future outflows, minus future inflows, for an insurance contract
Correct Answer: (D)
Explanation: When constructing life insurance models, actuaries consider future benefits and expenses (outflows) against future premiums (inflows). The model helps determine how much reserve to hold and guides premium setting.
Question 4
(A) Higher mortality rates increase premium costs (B) Lower mortality rates automatically mean lower premiums (C) Using historical mortality trends has no impact on pricing (D) Mortality rates do not affect life insurance pricing 2 / 4
FSA Fellow of the Society of Actuaries Exam
Correct Answer: (A)
Explanation: Higher mortality rates indicate a greater likelihood of claims, which typically increases the cost of insurance and thus leads to higher premiums.
Question 5
(A) Single premium whole life insurance is always the most profitable product for insurers (B) Reserves for whole life policies are typically higher in the early years compared to the later years (C) Term life insurance requires no reserve since coverage is temporary (D) Universal life insurance is primarily used to avoid regulatory constraints
Correct Answer: (B)
Explanation: Whole life policies often have substantial reserves in the early years because the insurer must prepare for long-term benefit obligations that extend far into the future.
Question 6
(A) Marginal cost analysis (B) Gross premium valuation 3 / 4
FSA Fellow of the Society of Actuaries Exam
(C) Sum of claims ratio (D) Present value factor approach
Correct Answer: (B)
Explanation: Gross premium valuation involves the discounted value of future claims, expenses, and profit margins relative to expected future premiums, ensuring the premium is sufficient for the policy’s lifetime.
Question 7
(A) Profit testing models (B) Frequency-severity models (C) Linear regression models (D) Stochastic interest rate models
Correct Answer: (A)
Explanation: Profit testing models are used extensively in life insurance to assess how changes in assumptions (like mortality, expenses, and interest rates) affect the profitability of products.
Question 8
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