Chapter 1

Question 1

4 Main risks in life insurance

Answer 1

WIME

• Withdrawal
• Investment
• Mortality
• Expenses

Question 2

New business strain arises due to (5)

Answer 2

• Initial UW
• Marketing
• Setting up policy - dev costs
• Reserves (prudent basis)
• Required solvency margins (min assets above prudent liabs)

Question 3

Formula for capital strain

Answer 3

C0+ =V0+ +E0+ -P 0+
Where;
C0+ = Capital strain at time 0 +
V0+ = Supervisory reserves and minimum solvency margin at time 0+
E0+ = Expenses and commission incurred by time 0+
P = Premium paid by time 0+. 0+

Question 4

Asset share

Answer 4

A0+ =P0+ -E0+

Question 5

Customer needs change due to (4)

Answer 5

• lifestyle
• standard of living
• education
• technology

Question 6

Product cycle (7)

Answer 6

• Product design
• Pricing
• Marketing/Sales
• Underwriting
• Claims Management
• Experience Monitoring
• Valuation

Question 7

Endowment assurances are used to:

Answer 7

• to transfer wealth.
• Pay off capital on interest only loan
• Save for retirement

Question 8

Asset share definition

Answer 8

Accumulation of premiums minus expenses and cost of benefits to date at the actual rate of interest earned.

Question 9

When talking about mortality risk- look at reserves

When talking about withdrawal risk - look at asset share

Answer 9

(claim cost) - (reserve) = capital loss at claim

(claim cost) - (asset. share) = overall accumulated loss

Question 10

“Capital requirements” in a question: CRISP

Answer 10

• Contract design
• Relationship between supervisory and pricing reserving bases
• Initial expense level
• Solvency margin requirements
• Premium payment frequency