Chapter 25

Question 1

Adv of retrospective method for calculating surrender values

Answer 1

1. Gives appropriate values at early durations
2. Method is not overly complex

Question 2

Disadv of retrospective method for calculating surrender values

Answer 2

1. Does not say anything about the profit that would of been made if the policy were not surrender. Therefore, we cannot ensure equity with continuing policyholders or with shareholders
2. As duration in-force approaches the full term, the surrender value will only by chance approach the maturity value
3. Not comparable with the prospective method value
4. Does not take into account expected future experience, could produce surrender values that are significantly different from a realistic protective value

Question 3

Adv of prospective method for calculating surrender values

Answer 3

1. Enables the company to quantify how much profit to retain and hence maintain equity with continuing policyholders and any shareholders
2. Does not require any knowledge of what happened in the past
3. Surrender value tends to the maturity values over time (Suitable at later durations)
4. Comparable with auction values

Question 4

Disadv of prospective method for calculating surrender values

Answer 4

1. Not suitable at early durations