Chapter 12: The general business environment 2

Question 1

Overheads:

Answer 1

Overheads can be any expenses that are not specifically related to a particular policy activity.

More often they are the “fixed” expenses, that do not vary with volume of business within a given scale of company operation.

Question 2

The main different expenses: (4)

Answer 2

1. Salaries
2. Property expenses
3. Computer expenses
4. Investment expenses

Question 3

Effect of the Economic environment:

Answer 3

The available assets will influence investment policy and interest rate assumptions.

Question 4

Common regulatory restrictions: (7)

Answer 4

1. A restriction on the types of contract a life insurance company can offer.
2. Restrictions on the premium rates, or charges, for some types of contract.
3. Requirements relating to the terms and conditions of the contract.
4. Restrictions on the channels through which life insurance can be sold, on sales procedures or on information given at the point of sale.
5. Restriction on the ability to underwrite (e.g. to avoid discrimination)
6. An indirect constraint on the amount of business that may be written, via minimum reserving or solvency margin requirements.
7. Restrictions on the types of asset or the amount of any particular asset in which the life company may invest for the purpose of demonstrating solvency.

Question 5

The most common approaches to life insurance company taxation are: (2)

Answer 5

1. a tax on the annual profits of the business,

2. tax payable on investment income less some or all of the operating expenses of the company.

Question 6

In comparing the tax advantages of different products on must consider: (3)

Answer 6

1. The taxation treatment of premiums paid, in particular whether the premiums are deductible from individual’s taxable income in full, in part or not at all, and whether there is a premium tax.
2. The taxation of the life insurer’s funds during the life of the contract.
3. The taxation treatment of the eventual policy benefits.

Question 7

Professional guidance

Answer 7

Actuarial associations will often issue professional guidance for actuaries advising life insurance companies.

This will typically give actuaries a framework of points to be considered in carrying out their responsibilities in order to maintain professional standards.