PAK Study Manual Strategic Decision Making (SDM) Exam Fall 2018 Edition

Transcription

1 Study Manual Strategic Decision Making (SDM) Exam Fall 2018 Edition MCEV Liquidity Solvency II Decision Making Accounting Behavioral Finance Strategic Management Organizational Behavior Market Value Margin Balance Sheet Value at Risk LGD MCoC

2 Study Manual for SDM Fall 2018 PRODUCT FEATURES Features Study Manual Exam Aid Flash Cards Test Aid Video of the Week Study Manual Basic Package Study Manual Premium Package Summaries X X X Relevant Past Questions (List) X X X 500+ Practice Questions X X X Case Study Analysis X X X 10 Mock Questions X X X Suggested Schedule (Detailed) X X X Support X X X 110 Mock Questions X X X 700+ Practice Questions X X X Case Study Questions X X X Past Questions (Sorted PDFs) X X X Electronic Flash Cards X X Audio Flash Cards + Anki X X Condensed Summary X X Mock Exam X X Weekly Videos X X X Online Seminar Bonus materials Online Videos Past Question Video Mock Questions Practice Questions X X X X X 1

3 STUDY MANUAL A printed copy of the manual can be purchased separately. 1. Summary The Study Manual covers the entire SDM syllabus. Not only does it give you the detailed explanations on conceptual, calculation, and exam materials, but it also fills in the gaps among the topics that are not covered in the source readings. It helps you better understand and master the confusing logics and difficult materials. In addition, it links the similar topics across readings together and connects them to the syllabus so that you can see the whole picture of this exam. 2. Relevant Past SDM SOA Exam Questions (List) For each reading, we compose a list of relevant past exam questions (if any) so that you can locate the questions quickly and practice them immediately. This saves your time on searching what materials are relevant to this exam. 3. Case Study Analysis This set connects the case study materials to the study materials so that you can see the picture on how they can be tested Practice Questions One key point to pass this exam is to "practice" (Practice makes perfect!). Due to this reason, we include many practice questions in each reading to refresh the materials just learnt and to strengthen your knowledge. More practice will be available in the Exam Aid Mock Exam Questions The mock exam questions mimic the same difficulty level of the real exam questions. 10 mock exam questions and solutions are included in the Study Manual to challenge your understandings. More practice will be available in the Exam Aid. 6. Suggested Study Schedule (Detailed) The syllabus is huge. It is very easy to lose track on your study. A clearly defined study schedule and some useful tips are included to help you better manage your schedule. 7. Support Get questions? Please send us an The study materials were very helpful in preparing me for the exam. Most importantly I was better able to apply the things that I learned to exam style questions. By Marc Roberts Read the whole story DO YOU KNOW? The Study Manual and related aids are updated EVERY exam sitting. You will see the most updated materials, examples, and explanations to help you master the concepts and pass this exam in the first attempt. 2 FLASH CARDS A printed copy of the flash cards can be purchased separately. 1. Electronic Flash Cards Summarize the key points in organized format. Include pros/cons, definition/description, etc. Contain around 400+ front/back flash cards (or 800+ slides). Read them in your smart phone device, tablet device, and/or computer. PDF version is also available. 2. Audio Flash Cards + Anki You can load them to your smartphone device and listen to them anytime/ anywhere you want. An Anki version is available. 3. Electronic Condensed Summary Summarize the key points in outline format Quickly refresh all the important topics in the readings TEST AID 1. Mock Exam This set of mock exam is different from those mock questions available in the Exam Aid. You can write down your answers and send them to me. I will give you detailed feedbacks on how to improve your exam score.

4 EXAM AID Mock Exam Questions and Solutions The mock exam questions mimic the same difficulty level of the real exam questions. 100 mock exam questions and solutions (10 mock question sets) are included to challenge your understandings Practice Questions One key point to pass this exam is to "practice" (Practice makes perfect!). Due to this reason, we include many practice questions in each reading to refresh the materials just learnt and to strengthen your knowledge. They are different from the practice question set in the manual. 3. Case Study Practice Questions A set of case-study-related practice questions is included to help students better understand how to answer case study questions. 4. Past SOA Exam Questions (from All FSA Tracks) Relevant to This Exam This set not only includes the past exam questions from the SDM exam, but also includes the past exam questions from all the other FSA exam tracks (e.g. FETE, APM, CSP, DP, etc). It helps you better understand how the materials were tested and gets you familiar with the SOA exam question style. DO YOU KNOW? You can find the most updated information about the Study Manual and related aids under the Announcement section on the front page of the website. VIDEO OF THE WEEK 1. Videos discussing confusing topics and concepts. 2 Videos explaining calculation-related examples. 3. Video reviewing the case study. 4. Weekly video answering common students' questions. The Mock questions, Mock exam and Exam Aid are also very beneficial to make sure you're abilities are up to par before the real exam. By Wes Smith Read the whole story RELEASE SCHEDULE Features Study Manual Exam Aid Flash Cards Test Aid Video of the Week Study Manual Basic Package Study Manual Premium Package Online Seminar Summaries 5/10 5/10 5/10 Relevant Past Questions (List) 5/10 5/10 5/ Practice Questions 5/10 5/10 5/10 Case Study Analysis* 8/15 8/15 8/15 10 Mock Questions 5/10 5/10 5/10 Suggested Schedule (Detailed) 5/10 5/10 5/10 Support Anytime Anytime Anytime 110 Mock Questions* 8/15 8/15 8/ Practice Questions 8/15 8/15 8/15 Case Study Questions* 8/15 8/15 8/15 Past Questions (Sorted PDFs) 6/15 6/15 6/15 Electronic Flash Cards 5/30 5/30 Audio Flash Cards + Anki 5/30 5/30 Condensed Summary 5/30 5/30 Mock Exam* 8/15 8/15 Weekly Videos 5/30 5/30 5/30 Bonus materials To Be Announced Online Videos 5/10 Past Question Video 9/1 Mock Questions* 8/15 Practice Questions 8/15 * The release schedule of these items may be changed. It depends on when the SOA will release the new case study. 3

5 ONLINE SEMINAR 1. Over 80 videos to clarify and explain the key concepts/calculations in the readings of the entire syllabus 2. Discuss the past exam questions and what questions might be asked on the upcoming exam 3. Videos reviewing exam tips and techniques that can help you to maximize your score 4. Review the new version of the case study and discuss which sections are important, and how they might be tested 5. Contain condensed outlines for each reading 6. Practice Question Set to test your knowledge (together with 400+ practice questions in the manual) 7. Review the lectures and study at your own pace, on any PC, Mac, smartphone, and/or tablet device 8. All videos are available in MP3 (audio) format 9. Instructor support via and Forum support to help you to clarify any section of the syllabus 10. Free access for 2nd attempt (only for those who scored 2-5) 11. Include Study Manual and Flash Cards Mock Question Sets (Bonus: Feedback on one Mock Question Set + 1 case study practice) SAMPLES? You can find more samples on the website. IMPORTANT NOTES 1. Please note that all products are in electronic (PDF) format. No hard copy is provided. 2. Once you make a purchase (please use your work address), we will send you a confirmation within 1 business days Once the files are available, we will send them to you through . Please make sure that you put the correct address when you purchase the products. If you do not receive the confirmation , please send us an (services@pakstudymanual.com). 3. Please check your junk mailbox. Sometimes, our is blocked. DO YOU KNOW? If you are not sure which exam track to take, or how it can advance your career, you can send an to Paul or Eddy and discuss your situation with them. They will share their work experience with you so that you can make your decision informatively. MORE INFORMATION Want more information? Please contact me at eddy.chan@pakstudymanual.com, paulpeterson@pakstudymanual.com or visit COMMENTS FROM THE PAST CANDIDATES You can find more comments from the past candidates here: Testimonials. WHERE TO PURCHASE PRODUCTS The products are available at Actex, and Actuarial Bookstore. 4

6 Study Manual for SDM Fall 2018 Frequent Answer Questions Do You Need to Read the Source Readings? Unlike the preliminary exams, reading the source readings (textbooks, SOA study notes, and online readings) is a must in the FSA exams. Study Manual can help you understand the materials faster and memorize them quickly so that in the time-limited environment, you can be well-prepared for the exam. How Much Time is Needed to Study for This Exam? This varies by person. Usually it will take one hours to study for a FSA exam (5-hour). Please expect to spend the same amount of time for the SDM exam. Study Schedule From the date the SOA release the new syllabus to the exam date, there are around 4 months to study. How to plan your study schedule? T=2.5 months T=0 T=3.5 months T=4 months Read the Source Readings Review Again Practice Read the Source Readings Assume you take the SDM exam in this exam sitting. In general, it will take one 2 to 2.5 months to finish them. To study more efficiently, we highly suggest you following the steps below: Step 1: Define Your Own Study Schedule - Use the suggested study schedule as a reference - Prepare your own study schedule (Target and Expect to read the whole syllabus and the past exams 2 or 3 times before the exam Step 2: Read the Source Readings Together with the Study Manual - Write down your notes in the study manual - Highlight all the key points there (Will be used for memorization later) - Label any calculations that you will go over again later - Go over the related past exam questions once you finish that reading Step 3: Practice the SOA Past Papers - Practice them once you finish your first-round of readings (use the Exam Aid) - Understand how the topics were tested and how the questions were answered Review Again After completing the three steps above, you probably have a general idea about how the exam looks like. Now you should review the source readings again but this time focus more on the key topics, clarify the confusing concepts/calculations, think of what can be tested and read them carefully (use my mock exam questions) Practice The last month is the most critical month. Here are the steps: - Practice the past exams and my mock questions to identify what you still do not know - Go back to the readings and find your answers (or send us an if you need help) - Start memorizing the key points (use the Flash Cards) - Use the Test Aid to test your knowledge (Send us your answers and we will give you detailed feedbacks on how to improve your score in the exams) More Information We will explain how to prepare for this exam in much more details in the Study Manual. Any Questions? We know you probably have a lot of questions in your mind regarding the exam or choosing study aids. Please feel free to contact us at eddy.chan@pakstudymanual.com or paulpeterson@pakstudymanual.com Study Manual 1 SOA SDM Exam (Study Manual)

7 Study Manual for SDM Fall 2018 SDM : Berkshire Hathaway 2014 Annual Report (p.7-11 and 121) (by BIS) Key points Key Points in This Reading 1. Understand the components of intrinsic value and how to estimate it SAMPLE Intrinsic Business Value (p.7-11) Three Elements to Estimate of Intrinsic Value Element Description Per-share investments o It is a quantitative factor. o It includes stocks, bonds, and cash equivalents. Business earnings o It is a quantitative factor. o It is the earnings that come from sources other than investments and insurance underwriting. "What-will-they-do-withthe-money" factor o It is a qualitative factor that tells the efficacy with which retained earnings will be deployed in the future. Insurance Insurance Business - Insurance business is Berkshire s core operation. - That industry has been the engine that has propelled their expansion since Property-Casualty Business - "Collect-Now, Pay-Later" Model - P/C insurers receive premiums upfront and pay claims later. - In extreme cases, such as those arising from certain workers compensation accidents, payments can stretch over many decades. - This collect-now, pay-later model leaves P/C companies holding large sums money they call float that will eventually go to others. - Meanwhile, insurers get to invest this float for their benefit. - Though individual policies and claims come and go, the amount of float an insurer holds usually remains fairly stable in relation to premium volume. - Consequently, as their business grows, so does our float. - If they do experience a decline in float, it will be very gradual. - The nature of their insurance contracts is such that they can never be subject to immediate demands for sums that are large compared to their cash resources. - This strength is a key pillar in Berkshire s economic fortress. Concept The "float" they called is the "reserve" we called. Insurer invests the assets that support the reserve and generate investment income (to pay for operation expenses, benefits, and profits). Intense Competition - If the premiums exceed the total of the expenses and eventual losses, we register an underwriting profit that adds to the investment income the float produces. - When such a profit is earned, we enjoy the use of free money and get paid for holding it. - Unfortunately, the wish of all insurers to achieve this happy result creates intense competition, so vigorous indeed that it frequently causes the P/C industry as a whole to operate at a significant underwriting loss Study Manual 2 SOA SDM Exam (Study Manual)

8 Study Manual for SDM Fall 2018 So How Does the Float Affect Intrinsic Value? - When Berkshire s book value is calculated, the full amount of the float is deducted as a liability (reserve), just as if we had to pay it out tomorrow and could not replenish it. - But to think of float as strictly a liability is incorrect; it should instead be viewed as a revolving fund. - Daily, we pay old claims and related expenses and that reduces float. (Cash outflows) - We each day write new business and thereby generate new claims that add to float. (Cash inflows) Concept 20X1 20X2 (+) Premium Income (+) Investment Income (+) Total Income ( ) Death Benefits ( ) Annuity, Surrender, & Others ( ) Premium Taxes 4 5 ( ) Change in Reserve Float ( ) Other Expense ( ) Commission ( ) Total Benefits and Expenses (=) Pre-tax Profit ( ) Income Tax After-Tax Earnings ( ) Increase in Capital (+) After-Tax Interest on Capital Distributed Earnings This is an example of an income statement of an insurance company. Insurer can deduct the "float" as an expense over periods. The "float" is saved as a reserve in the company and generate investment income for the next period. #1: In the accumulated stage when received premium is larger than benefit payment, the "float" can be used as a reserve to 1) save money inside the company, 2) pay less tax, and 3) generate investment income for the next period. #2: In the payment stage when received premium is less than benefit payment, the "float" can be released to pay off benefit payments. In both stages (#1 and #2), the "float" can be used to stabilize the earnings of the company (and affect its intrinsic value). The True Value of Liability - If the revolving float is both costless and long-enduring, the true value of this liability is dramatically less than the accounting liability. - Owing $1 that in effect will never leave the premises is worlds different from owing $1 that will go out the door tomorrow and not be replaced. - The two types of liabilities are treated as equals, however, under GAAP. Goodwill Goodwill asset = Sale price of the insurer Book (carrying) value of the insurer - In very large part, the goodwill represents the price we paid for the float-generating capabilities of the insurance operations. - The cost of the goodwill has no bearing on its true value. - For example, if an insurance company sustains large and prolonged underwriting losses, any goodwill asset carried on the books should be deemed valueless, whatever its original cost. - The true economic value of Berkshire's insurance goodwill to be far in excess of its historic carrying value. Key Managers in Berkshire - Berkshire Hathaway Reinsurance Group Ajit Jain - Berkshire Hathaway Specialty Insurance Peter Eastwood - General Re Tad Montross - GEICO Tony Nicely 2018 Study Manual 3 SOA SDM Exam (Study Manual)

9 Study Manual for SDM Fall 2018 Four Disciplines of a Sound Insurance Operation Discipline Understand all exposures Assess likelihood Set profitable premium Walk away Description o Understand all exposures that might cause a policy to incur losses o Conservatively assess the likelihood of any exposure actually causing a loss and the probable cost if it does o Set a premium that, on average, will deliver a profit after both prospective loss costs and operating expenses are covered o Be willing to walk away if the appropriate premium can t be obtained Four Major Insurance Operations in Berkshire - BH Reinsurance / General Re / GEICO / Other Primary (small insurance companies) Intrinsic Value (p.121) Memorization: Description Intrinsic Value - Intrinsic value is the discounted value of the cash that can be taken out of a business during its remaining life. - It is used to evaluate the relative attractiveness of investments and businesses. - It is an estimate rather than a precise figure, and it must be changed if interest rates move or forecasts of future cash flows are revised. - Also, two different people looking at the same set of facts will come up with different intrinsic value figures. - Thus, that's why the authors never give their estimates of intrinsic value on Berkshire. Per-Share Book Value - The per-share book values are regularly reported because they serve as a rough measure for Berkshire s intrinsic value. - In other words, the percentage change in book value in any given year is likely to be reasonably close to that year s change in intrinsic value. Limited Use of Book Value - The reported book values may be far different from their intrinsic values. - The disparity can go in either direction. o For example, in 1964, Berkshire s per-share book value overstated the company s intrinsic value, since all of the company s resources were tied up in a sub-profitable textile business. o Now, their book value far understates Berkshire s intrinsic value because many of the businesses they control are worth much more than their carrying value. Example: College Education - We can gain some insight into the differences between book value and intrinsic value by looking at college education. Value Book Value Intrinsic Value Description o Think of the education s cost as its book value o If this cost is to be accurate, it should include the earnings that were foregone by the student because he chose college rather than a job. o First, we must estimate the earnings that the graduate will receive over his lifetime and subtract from that figure an estimate of what he would have earned had he lacked his education. o That gives us an excess earnings figure, which must then be discounted, at an appropriate interest rate, back to graduation day. o The dollar result equals the intrinsic economic value of the education. Conclusion - Some graduates will find that the book value of their education exceeds its intrinsic value, which means that whoever paid for the education didn t get his money s worth. - In other cases, the intrinsic value of an education will far exceed its book value, a result that proves capital was wisely deployed. - In all cases, what is clear is that book value is meaningless as an indicator of intrinsic value Study Manual 4 SOA SDM Exam (Study Manual)

10 Study Manual for SDM Fall 2018 Study Manual (Practice Questions) for SDM Fall 2018 (Sample) Note Practice Questions/Solutions are included in the Study Manual Study Manual SOA SDM Exam (Study Manual)

11 Study Manual for SDM Fall 2018 Textbook Reading: How to Measure Anything in Cybersecurity Risk Ch. 9 Q1: Suppose the beta distribution is used to model the cybersecurity risk. Beta and Alpha are the two parameters in beta distribution. What can we think of Beta and Alpha in terms of cybersecurity risk model? Q2: What is an "informative" prior probability? Data for Q3-Q4 You are given the following tables: x+i/2 alpha\beta x-i/2 alpha\beta p alpha\beta p alpha\beta Suppose you use the beta distribution to estimate whether users follow certain security procedures. Assume you do not have any information about the true population proportion. Suppose the size of an increment used is 0.1. You randomly sample five and find that only one is doing it correctly. Q3: Calculate the probability if x = 0.4. Q4: Calculate the 90% confidence level.. Q5-Others are not shown in this sample Study Manual SOA SDM Exam (Study Manual)