Ch 25: Surrender values

Question 1

Principles of surrender values

Answer 1

DACCCAR FEEED

Documentation: should be capable of being documented clearly
Asset share: must not greater than assets share, in aggregate, over reasonable time period
Complexity: must not be complicated to calculate, taking into account computing power
Competition (and auction values) and new business disclosure
Costs: Appropriately allow for cost of administering surrender
Anti-selection should be avoided e.g. lapse and re-entry
Regulation: comply with regulatory and professional requirements
Frequency of changes in calc: SV should not be subject to frequent changes, unless financial conditions dictate this
- Should not be subject to discontinuities over policy duration
Equity should be maintained between
- surrendering and remaining policyholders: the profit taken should be consistent between exiting and remaining policyholders.
- surrendering policyholders and shareholders: a reasonable profit can be extracted on surrender.
Ease of explanation to pH
Expectation (PRE)
- Discontinuance by duration (at short duration, closer to maturity)