Ch 26: Alterations

Question 1

Principles for setting terms for conversion to paid-up

Answer 1

SAM
Surrender value: consistent with surrender values –> SV before and after alteration should be ~=
Asset share: be supported by earned asset share at date of conversion
Maturity value: consistent with maturity values at later duration, allowing for premiums not received

Question 2

Principles for method for general alteration

Answer 2

FAB SLiCER
Fairness, between pH and sH, in terms of extracting suitable amount of profit on altered contracts
Asset share: Terms after the alteration should be supportable by EAS in order to avoid making a loss (i.e. should be affordable)
Boundary conditions consistency ( consider conversion to paid, SV, increase in SA)
PRE – terms should be consistent with PRE
Stability: small change in benefits should result in small change in premiums
Lapse and re-entry (and any other form of selection against insurer) should be avoided to reduce losses
Costs associated with alteration should be recovered
Ease of calculation, administration and documentation
Ease of explanation to pH
Regulation and professional guidance: terms should align with these