14. Surrender Values and Alterations

Question 1

Principles when setting surrender values

Answer 1

SPARE CAP

• Selection
• PRE
• consistent with any illustrative values provided to ph
• at early durations, not appear too low relative to premiums paid bearing in mind any projections in marketing materials
• at later durations, be consistent with maturity values
• Auction values
• Regulation (Regulation 5, LTIA)
• Equity
• Competitors
• Affordability - do not exceed asset share, in aggregate, over reasonable time
• practicality - not subject to frequent change, easy to document, not too difficult to calculate, not too difficult to explain to ph

Question 2

Principles of alterations

Answer 2

ABSA PERC

• affordability
• boundary conditions consistency
• stability
• avoidance of lapse and re-entry
• profit extracted should be fair / PRE
• ease of calculation and explanation
• regulation
• competition

Question 3

Factors affecting mortality options

Answer 3

TENETS

• term
• encouragement to policyholders
• number of times exercise possible
• extra cost to policyholder
• the conditions attaching to exercise
• selective withdrawals (loss of income from healthy policyholders)

Question 4

Factors affecting mortality options

Answer 4

TENETS

• term
• encouragement to policyholders
• number of times exercise possible
• extra cost to policyholder
• the conditions attaching to exercise
• selective withdrawals (loss of income from healthy policyholders)