Ch4: Life insurance products (4)

Question 1

Differences in policyholder risk for products that are index-linked compared to unit-linked

Answer 1

• the insurer tends to have greater investment risk with index-linked products
• there is much less scope for reviewing charges for existing index-linked products, which also increases insolvency risk
• index-linked products generally have much less flexibility

Question 2

Aspects of insurance company that affect its profitability and risk profile

Answer 2

• product design
• pricing
• selling and marketing
• investment policy
• underwriting practice
• reinsurance strategy
• approach to reserving and profit distribution
• discontinuance terms offered
• effectiveness of monitoring and feedback systems in reacting to events
• human resource management and remuneration
• admin procedures, data handling and maintenance
• capital management