Acronyms Flashcards

Question

How is multi-state modelling used in practice?

Answer 1

1. Determine proportions of lives in each stage 2. Model benefit outgo as number in non-pp stage * avg sa 3. Model premiums plus investment income as the premium paying stage 4. In reality there is not enough data and computing power to split into all the subgroups, so groups are combined

Answer 2

1. GIO - Purchase additional cover, usually at a life event, without further health evidence, at current standard rates for that age 2. Continuation - Renew long term insurance at end of original term, without further health evidence 3. Reinstate mortality cover after accelerated illness plan is triggered through illness

Answer 3

``` Buy house Marriage Civil partnership Birth of baby Adoption Salary increase Every 3rd policy anniversary Exercise before age 55 Plan started before age 45 Issued on standard rates ```

Answer 4

A strict maximum A % of SA A % of the percentage increase in salary Maximum of the salary/loan increase

Answer 5

1. Needs 2 extra assumptions as part of pricing basis a. Probability option is exercised b. Expected mortality/morbidity of lives who choose to exercise option

Answer 6

1. Needs 2 additional items in pricing basis a. Double.triple decrement table for lives who haven't yet exercised option, for death/disability/take up decrements b. Mortality/morbidity tables for lives who have exercised the option, represented by rates q'x 2. EPV benefits - EPV premiums is the EPV cost of option

Answer 7

NA. Difficult to get enough data for the decrement rates NB has no direct experience Conv. 1. Can't use when many possible exercise dates 2. Or when there is a choice of which option to take a. For 2. the approach would be to assume the worst option financial for company is taken up

Answer 8

We make the following assumptions: 1. All lives that can take up the option will do 2. The mortality/morb experience of those lives who take it up is the ultimate rates (worse) corresponding to the select rates (good mort) if underwriting had been completed as normal at exercise date 3. The mortality/morbidity basis does not change over time so only 2 sets of tables are needed

Answer 9

Stochastic modelling

Answer 10

Anti-selection Regular monitoring: Regularly monitor NB basis Regularly monitor reviewable premiums Regularly review reserves Premiums and profits: Premium competitive vs. market Premium right for enough volume Are profit margins right or do they need reducing for market share Is the Overall return on capital right? Regulations and reinsurance: Regulatory restrictions on pricing e.g. prescribed basis Regulatory restriction on investments e.g. local assets must be invested in Reinsurance impact on pricing/development/profit Reinsurer's requirements

Answer 11

SADLIFENIFERST

Answer 12

Objectives Methods Funding

Answer 13

Protect nation's health - healthy nation means more productive and higher GDP Subsidise the poor - Allow access to doctors/medicine/hospitals Balance the budget - funded through general tax or specific health charges Follow social culture and/or political promises - State healthcare may be part of nations culture and difficult to change in short term

Answer 14

Insurance as an optional/compulsory alternative Insurance as an optional/compulsory compliment Alternative means comprehensive state healthcare, but you might want better service, or not be allowed if salary above £x Complement means limited state healthcare and individual can/must fund rest.

Answer 15

1. Provide own hospitals etc. 2. Use commercial hospitals and reimburse partly/fully 3. Cash lump sum for old-age people to change home etc. 4. Income for those out of work/old

Answer 16

1. Salary-related, reward for higher tax payers 2. Flat-rated to provide incentive to return to work, minimise cost, encourage self-provision to those who can afford it.

Answer 17

1. tax relief on premiums 2. Exclude some/all of population from some national welfare 3. reduce general tax 4. direct subsidy to providers to reduce prices

Answer 18

PAYG Estimate outgo, tax revenue and subsidy needed over next year and adjust tax Forward funding Establish all of this over next 5, 20 year etc. Create a fund just for healthcare Intermediate methods A mixture of immediate and modelled, used when reducing workforce vs. beneficiaries.

Answer 19

1. Prescribed basis 2. Must send in basis 3. Invest in 'local' assets 4. Collect premium tax

Answer 20

Regulator desires: 1. Insurer remains solvent 2. Customer detriment minimal (sales/admin/cm) 3. Insurer files accurate reports To minimise customer detriment: 1. Clear unambiguous wording 2. Prescribed basis 3. Send in calcs before marketing 4. Represent value for money 5. No undue pressure e.g. have cooling-off periods 6. Product sold to customers it's designed for

Answer 21

1. type 2. maximum amount used for solvency 3. proportion held in particular type 4. single counterparty/country exposure limit 5. custodianship fo assets 6. currency matching 7. extent of mismatching allowed 8. mismatch reserve

Answer 22

``` TCF impacts on.. 1. Sales process through literature 2. claims process 3. customer relationship management ``` Company must: 1. avoid promising more than scope of product 2. make all policy condition clear and unambiguous 3. monitor sales process

Answer 23

Changes may effect EB e.g. not using gender, not allowed exclusions Court cases may set a precedent for compensation

Answer 24

1, type of contract 2. premium rates/charges 3. ratings factors 4. t's and c's like clear method of pup value calc 5. sales channels/commission/procedures 6. u/w restrictions like gender 7. reserve requirements being an indirect limiter to NB volume 8. Investment retrictions

Answer 25

1. Who they work for 2. How remunerated 3. Complexity of product 4. Initiator

Answer 26

Insurance intermediary 1. Who they work for - fully independent of market (though may be owned by an insurer), sell products from whole range 2. How remunerated - commission from insurer or fee from policyholder 3. Complexity of product - professional, most complex 4. Initiator - customer is, though periodic reviews mean more sales Tied agent 1. Who they work for - other financial institution like bank, selling limited range, tied to one or several insurers 2. How remunerated - commission from insurer 3. Complexity of product - simpler 4. Initiator - typically customer but agent may be active in selling too Own sales force 1. Who they work for - insurer directly 2. How remunerated - commission/salary/mix 3. Complexity of product - not very complex 4. Initiator - the agent, through sales/client lists, hope to build rapport Direct marketing 1. Who they work for - mailshot/press/telesales/internet/social media 2. How remunerated - n/a 3. Complexity of product - very simple 4. Initiator - press or tele = mixture - mailshots = insurer Worksite marketing 1. Who they work for - representative of insurer obtains permission from emplyer to address/sell to group of employees 2. How remunerated - commission/salary 3. Complexity of product - simple, though depends on sophistication of audience 4. Initiator - agent Currently used in PMI, could be for CI/IP, not for LTCI

Answer 27

``` Indemnity - for premiums not yet paid Renewal - encourage persistency Initial (between indemnity and level) Level (a percentage of each premium paid) % of SA ```

Answer 28

1. On premiums 2. On annual profits (change in A - change in L) 3. Investment income gains/loss - some/all operating expenses They influence design (tax efficiency) but also constrain it

Answer 29

1. Regulatory regime restrictions (CITRUSV, can non-insurers sell, what are their restrictions like?) 2. Tax regime (which products are tax efficient) 3. Commission (distributors want to sell high commission) 4. Changes in need to buy/sell (different governments rules) 5. Professional guidance (guidance on government regs) 6. Inflation (reviewable/expenses) 7. Business cycle (employer demand vs employee demand) 8. Employment security (IP) 9. Political stability (which government likes NHS?)

Answer 30

``` Accurate recording Regular vetting and Spot checks Data acceptance controls Compulsory fields Staff training ```

Answer 31

1. Part of the internal/external audit team will be to consider if data is reliable 2. Format of proposal form and admin system input screen the same

Answer 32

1. Records should be check end to end through different systems 2. Should periodically compare paper records vs. facts stored.

Answer 33

1. Software should have automatic error checking and prevention of input e.g. if age > 120 2. Where exceptions occur, only staff of certain level can change it, and an audit trail must be kept

Answer 34

Input not accepted unless these are filled | e.g. Age, sex, policy number to cross check against claim

Answer 35

1. Close relationships with input staff and software staff should be built 2. Encourage input staff feedback

Answer 36

RAF FsCUNT Relevant - the data should be relevant to risks Accurate - parameters derived as accurately as possible Flexible - flexible basis for valn/reserving to reflect changes in risk Financially significant - take particular care over FS assumps Consistency between various assumps..(client) Needs of client, considered Tax/regs/legs accounted for

Answer 37

``` Benefit outgo and inflation Transfer and recovery rates SCR Market consistency Risk discount rate Profit criterion Margins ```

Answer 38

Before sale: ``` Design Sales literature Commission T's and C's Marketing Pricing ``` During sale: Underwriting Data and admin systems During policy in force: Reserving Capital allocation Staff headcount Staff training During claim: Claims management