Ch 11 + 12: General business environment

Question 1

Areas affected by choice of distribution channels

Answer 1

• Contract design
• Mortality experience
• Withdrawal experience
• Level of underwriting

Question 2

Common regulatory restrictions

Answer 2

( Framework = Product cycle)
Product design
o Restriction on type of contract offered by insurer
o Requirements for T& C offered: how PUP/surrender benefits are
offered

Pricing
o Restriction on premium rates/charges
o Restriction on rating factors used for determining premiums
o Restriction on permissible reinsurance
o Indirect constraint on amount of business that may be written via
minimum reserves and minimum SCR

Marketing/sales
o Restrict distribution channels used
o Require specific marketing/sales procedure to be followed
o Minimum training/qualification for sales staff
o Specify information to be provided as part of selling process e.g.
illustrations for maturity values/surrender values
o Specify remuneration rules e.g., maximum commission payable

Underwriting
o Restrict ability underwrite e.g. don’t use results of genetic testing

Experience monitoring

Investments
 Restrictions on types of assets to invest in
 Restriction on extent to which assets of particular type is included when demonstrating solvency
 Restriction on extent of mismatch between assets and liabilities
 Requirement to set up an investments mismatch reserve if assets and liabilities have been mismatched
 Specify method used for valuing assets e.g. using book value instead of market-consistent value
 Restriction on concentration of asset holding in a particular area  can be applied per asset class, per individual asset, per currency
 Require assets held to be of a specific quality e.g. certain credit rating
 Restriction on way that assets are held which may direct the investment strategy e.g. no indirect investments permitted
 Requirement to have a custodian for assets
 Solvency capital may have to be invested in specific assets
 Tax regulation may treat some assets more favorably than others

Other
o Requirement to TCF

Question 3

Types of expenses

Answer 3

Initial expenses
Renewal expenses
Termination expenses
Overheads

Question 4

Common methods of taxing life insurers

Answer 4

Profits approach: tax on annual profits, which is broadly excess of the change in value of assets over the change in liabilities

Tax on investment income, less some or all operating expenses of insurer

Question 5

Examples of legal items that can affect operations of insurer

Answer 5

• PRE –> court enforce principles not in favor of insurer
• Unfair contract terms voiding clauses
• New legislation/judgements applied to inforce polices
• Inconsistency between policy document & marking material –> legal actions taken

Question 6

Aims of the climate change regulations that are under development

Answer 6

• Consider climate risk in existing business planning, investment management and risk management processes
• Disclose and report on climate-related risks and opportunities
• Adapt consistent and reliable means of assessing, pricing and managing climate-related risk