Preview Questions Actuary | Role Specific Skill

Question 1: How does "Risk-Adjusted Return on Capital" (RAROC) assist in evaluating the profitability of insurance products, and what are the key inputs required for accurate calculations?

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RAROC focuses solely on short-term profitability, not long-term sustainability

RAROC is only useful in banking, not insurance products

RAROC compares the risk-adjusted return to capital required, with key inputs including risk-weighted assets, return on equity, and capital charges

RAROC is irrelevant in financial modeling and should be replaced with traditional profitability metrics

Question 2: How do you calculate "Pension Obligation" under the "Projected Unit Credit" method, and what assumptions are involved in this calculation?

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The projected unit credit method is not used in pension calculations

The projected unit credit method disregards mortality assumptions and salary growth

The projected unit credit method calculates pension obligations based on the projected future benefits of participants, with assumptions including salary growth, mortality, and discount rates

The projected unit credit method is only used for insurance products and not pension plans

Question 3: When performing loss distribution modeling in actuarial science, which of the following distributions is most commonly used to model heavy tails in risk data?

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Uniform distribution

Normal distribution

Pareto distribution

Lognormal distribution

Question 4: Which of the following is a key assumption when using Monte Carlo simulations for financial forecasting?

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The future outcomes are deterministic based on historical trends

The market conditions will remain constant

The model assumes normal distribution of returns

The future outcomes are based on random sampling from known distributions

Question 5: In the context of regulatory frameworks, what is the key difference between Basel II and Basel III?

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Basel III introduced more stringent capital and liquidity requirements

Basel III is mainly focused on insurance companies

Basel II focused solely on liquidity requirements

Basel II implemented stricter solvency measures for insurers

Question 6: What does the Liquidity Coverage Ratio (LCR) in Basel III primarily aim to measure for financial institutions?

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The short-term liquidity position

The operational risk reserves

The adequacy of capital reserves for market risks

The credit risk exposure