Ch23: Contract design

Question 1

Surrender values need to recover

Answer 1

• Expenses incurred
• Expected profit of contract
• Penalty charge for breaking contract
• Cost of any life cover provided up to point of surrender

Question 2

Contract design factors

Answer 2

• Customer needs
• Characteristics of other stakeholders
• Risk appetite
• Regulatory environment
• Profitability
• Market for the product
• Competitive pressures
• Level and form of benefits
• Options or guarantees
• Discretionary benefits
• Benefits offered on discontinuance
• Contract terms and coditions
• Capital requirements
• Method of financing the benefits
• Premium/contribution pattern
• Charges vs expenses
• Extent of cross subsidies
• Consistency with other contracts
• Administration systems
• Accounting implications