Chapter 16 - Financial Assumptions

Question 1

Financial assumptions are used in these 7 particular applications:

Answer 1

1. Benefit amount
2. Benefit inflation
3. Expense
4. Expense inflation
5. Commission and clawback
6. Investment return
7. Tax

Question 2

Larger policies tend to have better claim experience because: (2)

Answer 2

1. PH tend to be from higher socio-economic group
2. There is stricter level of underwriting imposed for larger sums insured

Question 3

What is provider capacity?

Answer 3

The capacity of hospitals to provide treatments when required by policyholders

Question 4

Short term indemnity contracts, average claim amounts may need to be adjusted for: (6)

Answer 4

1. Medical inflation
2. Likely changes in treatment protocols
3. Costs of treatment
4. Demand for more expensive medical treatment
5. Future charging structure of hospitals and consultants
6. Future age profile of the portfolio

Question 5

Expense assumption should include the incidence of direct expenses from each of the the following activities: (9)

Answer 5

1. Initial acquisition
2. Initial medical underwriting
3. Initial administration
4. Renewal administration
5. Renewal reward to sales channel
6. Investment
7. Withdrawal expenses
8. Claim administration
9. Termination

Question 6

What is non medical limits

Answer 6

The maximum benefit level ine could apply for cover without aitomatically acquiring specified underwriting evidence

Question 7

Value assigned to the investment return parameter will be affected by: (3)

Answer 7

1. Significance of the assumption
2. The intended investment mix of the contract
3. The extent of reinvestment risk

Question 8

The significance of the investment return assumption will be affected by: (3)

Answer 8

1. The size of the reserve held by a product (larger reserves nore sensitive to assumption)
2. The loger duration of policy, longer reserves will earn interest, more significant assumptions will be
3. The more onerous the guarantee, more cautious IC should be in asset selection. This caution should be reflected in investment return assumption

Question 9

Main items of expense for claims in payment: (4)

Answer 9

1. Administering payments
2. Monitoring claim validity, and enforcing changes to benefit entitlement
3. Efforts expended in rehabilitation
4. Assessing claims to higher levels of benefits