DEPARTEMEN MATEMATIKA FMIPA UI

UJIAN AKHIR SEMESTER GANJIL 2019/2020

MANAJEMEN RISIKO I
TAKE HOME EXAM

1. A major Malaysian insurer is in a position to take over an Indonesian-based insurance

company called PT. Proteksi Tani. PT. Proteksi Tani has a particular focus on agricultural
insurance which may complement the Malaysian insurer’s expertise in this sector. Using
some preliminary information on Proteksi Tani, they can consider whether to continue
their investigation into the financial position and examine whether the Indonesian insurer
is a suitable take-over prospect.
a. With total assets of 242 million USD and total liabilities of 275 million USD, what is
Proteksi Tani policyholders’ surplus?
b. Last year, Proteksi Tani had earned premiums of 77.5 million USD, but total revenues
were 82.5 million USD. Explain how this was possible. Why might this be the case?
c. Proteksi Tani Plus is the company’s main insurance product and it is sold to 35,000
farmers in Indonesia. Proteksi Tani has incurred losses and loss-adjustment expenses
of 1,750,000 USD for this product over a 1-year period. What is the pure premium for
Proteksi Tani Plus?
d. If the gross rate for Proteksi Tani Plus is 78.12 USD, what is the expense ratio?
e. Although Proteksi Tani made a net underwriting loss last year, it paid 1.25 million USD
in taxes. Explain why this was the case.

2. Reinsurance can be used by an insurer to solve several problems. Assume you are
an insurance consultant who is asked to give recommendations concerning the type
of reinsurance plan or arrangement to use. For each of the following situations,
indicate the type of reinsurance plan or arrangement that the ceding insurer should
use, and explain the reasons for your answer.
a. Company A is an established insurer and is primarily interested in having
protection against a catastrophic loss arising out of a single occurrence.
b. Company B is a rapidly growing new company and desires a plan of reinsurance
that will reduce the drain on its surplus because of the expense of writing a
large volume of new business.
c. Company C has received an application to write a $50 million life insurance
policy on the life of the chief executive officer of a major corporation. Before the
policy is issued, the underwriter wants to make certain that adequate
reinsurance is available.
d. Company D would like to increase its underwriting capacity to underwrite new
business.

3. Deborah, age 75, has a $60,000 ordinary life insurance policy that has a cash value
of $35,000. Deborah is concerned about the cost of long-term care in a nursing
home. A new agent of a national life insurer persuaded her to transfer the $35,000
 into a deferred annuity. The agent told Deboah that the annuity pays lifetime
income benefits and also allows her to withdraw the $35,000 without penalty if she
should enter a nursing home. After the policy was issued, Deborah had 10 days to
change her mind. During the free-look period, a friend of Deborah examined the
policy. Analysis of the policy showed that only 10 percent of the cash value could be
withdrawn each year without penalty. A 7 percent surrender charge would apply to
any excess amounts withdrawn. In addition, the income payments were scheduled
to start in 10 years when Deborah attained age 85. Deborah filed a complaint
against the agent with the state insurance department. An investigation revealed
that the agent had made similar misrepresentations to other clients.
a. Based on the above facts, identify the illegal practice in which the agent engaged.
b. What action can the state insurance department take against the dishonest
agent?
c. What action can the state insurance department take against the life insurer?

4. Sofia lives in the suburbs of a city and works in the city center. Every day she uses
her bike to reach her office and then to return home because she has no driving
license and there is no public transportation available near her house. One day,
Sofia injured a child, 7-year old Frank, when she failed to stop at a red light. Frank
broke both hands and also suffered a mild concussion. He spent a few weeks in a
hospital. After the accident a court awards a liability judgment of €120,000 against
Sofia. She has two third-party liability insurance policies covering losses occurred
while riding a bike. The first policy (insurer ABC) is a special bike insurance with a
liability limit of €50,000, the second one is a private liability insurance in a
homeowners insurance package with a liability limit of €100,000 (insurer XYZ).
How much, if any, will each of Sofia’s insurer pay, if she has the following
provisions?
a. Pro rata liability.
b. Contribution by equal shares.
c. Primary (insurer XYZ) and excess (insurer ABC) insurance.