Faculty of Actuaries Institute of Actuaries
EXAMINATIONS
April 1999
Subject 303 — General Insurance
Time allowed: Three hours
INSTRUCTIONS TO THE CANDIDATE
1. You have 15 minutes at the start of the examination in which to read the
questions. You are strongly encouraged to use this time for reading only but
notes may be made. You then have three hours to complete the paper.
2. You must not start writing your answers in the booklet until instructed to
do so by the supervisor.
3. Write your surname in full, the initials of your other names and your
Candidate’s Number on the front of the answer booklet.
4. Mark allocations are shown in brackets.
5. Attempt all 11 questions, beginning your answer to each question on a
separate sheet.
AT THE END OF THE EXAMINATION
Hand in BOTH your answer booklet and this question paper.
In addition to this paper you should have available
Actuarial Tables and an electronic calculator.
ã Faculty of Actuaries
303—A99 ã Institute of Actuaries
303—2
1 A small general insurance company underwrites only a single class of
business, which is long tailed. Describe briefly the factors it should consider
when deciding upon its investment policy. [7]
2 An insurance company intends to offer a product to the motion picture
industry. The product will provide cover should the cost of producing a
finalised, distributable product exceed a pre-agreed budget. List the major
perils that could be included in the cover. [4]
3 (i) Describe the assumptions behind the Bornhuetter-Ferguson method of
estimating the ultimate cost of claims of a book of business. [2]
(ii) You have been given the following information about a particular class
of business.
Underwriting Initial Premium Reported claims
Year Expected cost as at
Loss ratio 31 December 1998
1995 70% 1,000,000 500,000
1996 75% 1,500,000 500,000
1997 80% 2,000,000 1,000,000
1998 85% 2,500,000 400,000
Expected reported claims development pattern:
Development year 0 1 2 3 4
Expected proportion developed 10% 50% 80% 90% 100%
Calculate the expected ultimate claims as at 31 December 1998
according to the Bornhuetter-Ferguson method. [3]
(iii) Comment briefly on the reliability of the results in part (ii). [3]
[Total 8]
4 List, and state the purposes of, the major actuarial investigations undertaken
by general insurers in relation to investment.

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