CH 12 (General Business Environment)

Question 1

Types of Commission

Answer 1

• Initial
• Renewal

Question 2

Categories of Expenses

Answer 2

TARTS

Timing:
- Initial
- Renewal
- Termination

Attribution:
- Direct
- Indirect
- Overheads

Relation:
- Count of policies
- Size of premium
- Size of benefit

Type (SPOCCCI)

relative Size:
- Fixed
- Variable

Question 3

Everything an insurance company spends money on

Answer 3

–Salaries
–Property
–One-offs
(e.g. fines)
–Computers
–Consumables
–Commissions
–Investments

Question 4

Expenses over a policy’s life cycle

Answer 4

–Overheads
–Product development
–policy Termination
–policy Issue
–Marketing
–policy Administration (renewal)
–claims Settlements
–Support

(PART O
**Pre-sale
**At sale
**Regular
**Termination
**Overheads
)

Question 5

Impact of Law

Answer 5

CC MAN

• Case law
  (affecting PRE)
• certain policy Conditions outlawed
  (limits product design and risk management)
• risk of Misrepresentation
  (inconsistency in policy documents/sales)
• risk of legal Action
  (through contractual issues)
• risk of New legislation acting retrospectively on existing book

Question 6

Impact of Economy

Answer 6

RAD

• assumed interest Rates, cost of capital and volatility margins
  –> Affect price of product
  –> Affect demand for insurance
• available Assets affects investment policy
• general Demand for product through comparison with other investments

Question 7

Common Regulatory Restrictions

Answer 7

TIPTAC

• disallowed Types of contract
• Investment restrictions (on solvency capital)
• Premium rate/charge restrictions
  (including rating factors)
• T’s and C’s requirements
  (e.g. surrender value calculation)
• Amount of business allowed to be written
  (indirectly through capital/reserving requirements)
• Channel restrictions, sales procedures and info at point of sale
  (including underwriting)

Question 8

Scope of Tax

Answer 8

Insurer:
- tax on annual Profits
- tax on net Investment income (less operating expenses)
…capital gains vs income tax

Insured:
- tax on Premiums
(reducing taxable income + premium tax)
- tax on Benefits
- tax on insurer Funds during life of the contract
(may affect loading on premium)

Question 9

Role of Professional Guidance

Answer 9

• framework to maintain professional Standards
• bolsters Actuaries’ stance in seeking action for policyholder best interest
• interpretation of Government regulations
• generate consumer Confidence in the industry
• ensures Consistency between insurers
  (sets a standard)

Question 10

Pros and Cons of Regulation

Answer 10

Pros:
- Protects the consumer
- encourages Confidence in the industry
(allowing it to exist)

Cons:
- can limit Innovation
- costs of implementation can Reduce benefits

Question 11

Investment Regulation

Answer 11

-Currency matching
-Types of assets
-mismatching Reserve
-mismatching Limit
-Prescribed assets
-Amount of the different types of assets
-Custodianship of the assets
-max exposure to Single counter party

• Extra one:
  Allowing certain assets to discount at a higher rate (indirect restriction)

Question 12

Impact of Fiscal Policy (Tax)

Answer 12

• Product design constraints
• Implications on guarantees biting
  (tax rules change over time)
• Marketability of product
  (attractiveness of product to consumer due to impact of premium/benefit taxes on consumer)
  …opportunities in the efficiencies and constraints in the limitations
• Pricing and profitability of the insurer’s products

Question 13

Factors of General Business Environment

Answer 13

DERP FLEP:

-Distribution channels
-Economic environment
-Regulatory constraints/opportunities
-Purchase propensity
-Fiscal regime
-Legal environment
-Expenses and commission
-Professional guidance