Chapter 21: Pricing (3)

Question 1

List general pricing considerations

Answer 1

Marketability of premiums might lead to a reconsideration of:
product design
distribution channel/ target market
company’s profit requirement

Competitiveness:
rating factors in line with competitors to avoid anti-selection
premiums reduced to secure sufficient volumes against competitors
premiums reduced for loss-leader product

premiums should allow for the cost of reinsurance, and meeting solvency capital requirements

Regulation:
pricing bases, premium rates or rating factors can be put under direct control of the regulator

Reviews:
pricing basis must be kept up to date through frequent experience monitoring
reviewable premiums - important to prevent premium increase leading to selective withdrawal

Question 2

List 3 common profit criteria

Answer 2

NPV
IRR
discounted payback period