Our Case for California Actuarial Case Competition

Actuarial Case Competition

Presented to you by Group 3

Presenters:Sio LeiFelix LiangAmy ZhangIris Zhang

The Health Care ReformGoal of the reform: To deliver more affordable and higher-quality care to more individuals in the U.S.

Children/Young Adults:- Pre-existing conditions ≠ no coverage - Government program partial coverage for uninsured young adults with pre-existing conditions- < 26 can stay on parents’ insurance plan

Women:- Pre-existing conditions ≠ no coverage- No different premium for gender difference

Others:- Medicaid/Medicare: - more inclusive Medicaid - incentives to provide quality and more efficient care- All insured: fully-covered preventative care- Cannot be dropped from policies when sick- 2014: no one can be denied of coverage for pre-existing conditions

Beneficiaries:

- Unrealistic budget projections: increasing budget deficit?

- Public option private sector’s pressure?

- Freedom of Choice? unconstitutional to require insurance?

Major controversies:

Health & Group Benefits Retirement Benefits Individual Life & Annuities Property & Casualty Q & A

The Health Care ReformChallenges to insurance companies:- Pricing differentiation = prohibited generic pricing- Full coverage of “essential” care moral hazard- More regulations exposed to more risks-Minimum Loss Ratio (MLR) Less profit margin

Year Event % Uninsured

Increase of insured pool from 2009*

2009 Reference year 16.7% N/A

2014 1% income fine if fail to buy insurance (min. $95) 8%* ~27 million*

2016 2.5% income fine if fail to buy insurance (min. $695) 5%* ~ 36.3 million*

*Predictions based on available information, compare with 32 million predicted by National Underwriting Company

Opportunities:- Consulting firms: Clients eager to learn the change New group benefits requirements- Insurance companies: Expanding insured pool from req. Subsidized insurance state health insurance exchanges: Platform to reach potential clients


Retirement Plans Defined Benefit and Defined Contribution

Challenges

Philosophy

Entitlement

Self-Responsibility

Risk/Costs

• Employers Bear Market Risk

• Changing Costs

Employees Bear Risk

Predictable Costs

DB

DC

Design

Employer Invests and PaysWorker’s Work History

Employee InvestsEmployer Matching

PV(benefit) =FV(contribution)

Tax, inflation, retirement age, life expectancy

Employees’ Investment Abilities


The Optimal Plan

1980 1985 1990 1995 2000 2005 2010 20150%

10%

20%

30%

40%

50%

60%

70%

80%Participation in Retirement Plans (Private Industry)

DC DB

Years

Part

icip

atio

n Pe

rcen

tage

Retiring Today

Next?Hybrid


Term Insurance & Whole Insurance- Compared with whole insurance, term insurance has: - shorter term - lower premium - Companies make profit in a term insurance, when the contract expires without paying out if the insurant doesn’t die within the coverage period. - easier way to price the premium present value of expected compensation that insurers need to pay each year in coverage period- Whole insurance


Whole insurance- We price the whole insurance through solving two equations:- There are two variables:

X the amount of premium.α the proportion of premium allocated to cash value account1- α the proportion of premium allocated to death benefit account

- Let the death benefit be $250K and the policyholder buys the insurance at age 23- (1)…..Expected compensation insurers need to pay for those die before age 65= X(1- α) (Q23+P23*Q24+P23*P24*Q25+P23*P24*P25*Q26+…….+ … P62*P63* P64*Q65)* ($250K) = X(1- α)*(65-23)

- (2)…..The amount of cash value account at age 65 is equal to the death benefit =

$250K= X(α) * {[(1.026) 65-23 -1] / 0.026} where {[(1.026) 65-23 -1] / 0.026} is the accumulative factor-Who should buy whole insurance?1. Have urgent money (e.g. for business) in the future2. Have a large estate3. Own a business and want to take of succession during life4. Want to leave children money when they pass away5. Have medical concerns6. Are not too old


What is Loss Triangle?-A table of loss experience showing losses for a certain period at regulate dates, reflecting the change in amount as claim matures-There are many types of loss triangle, such as paid loss, accumulated paid loss, accumulated incurred loss, average closed claim, etc. - Actuarial Development factors: Loss Development method, Expected Loss Method, Bornhuetter/Ferguson Method and Frequency/Severity Methods.


Development Factors and Projection


Comparing Results and Monitor

- Easy to present the data

- Convenient way to see the pattern-More accurate reflection of the entity’s specific loss development patterns

- Hard to understand from a first glance- Loss triangle itself cannot help actuaries

to make accurate estimation


Questions & Answers


Health & Group Benefits: Amy Zhang-- [email protected]

Retirement Benefits: Iris Zhang-- [email protected]

Individual Life & Annuities: Sio Lei-- [email protected]

Property & Casualty: Felix Liang-- [email protected]

mailto:[email protected]




Economy & Finance

Our Case for California Actuarial Case Competition