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F102 Life Insurance Principles > Chapter 35: Monitoring experience > Flashcards

Chapter 35: Monitoring experience Flashcards

1
Q

Experience will be monitored as part of the control cycle so as to: (4)

A
  1. develop earned asset shares
  2. update assumptions as to future experience
  3. monitor any adverse trends in experience so as to take corrective actions
  4. provide management information
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2
Q

What are some of the things that can be identified from monitoring experience: (5)

A
  1. profitable products
  2. profitable sales channels and agents
  3. profitable markets
  4. efficient sections of the business
  5. successful investment strategies
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3
Q

What are the data requirements for experience monitoring: (4)

A
  1. The basic requirement is that there is a reasonable volume of stable, consistent data, from which future experience and trends can be deduced.
  2. The data ideally need to be divided into sufficiently homogeneous risk groups, according to the relevant risk factors.
  3. However, this ideal should be balanced against the danger of creating data cells that have too little data in them to be credible.
  4. It is important to agree the period over which the data will be collected.
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4
Q

Subdividing the data - the data would be analysed, where relevant, by: (7)

A
  1. type of contract
  2. age
  3. sex
  4. duration from entry
  5. smoker/ non-smoker status
  6. medical/ non-medical status
  7. source of business
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5
Q

For withdrawal experience - the factors by which the data could be analysed are: (7)

A
  1. type of contract
  2. duration in force
  3. sales method used and target market
  4. frequency and size of premium
  5. premium payment method
  6. original term of contract
  7. sex and age
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6
Q

Withdrawal rates in the future are affected by: (3)

A
  1. economic situation; and
  2. the competitive situation of the product, e.g. introduction of more attractive products can have an adverse effect
  3. perceived value of the product to the customer
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7
Q

For the purpose of an expense analysis, the non-commission expenses can then be split into: (4)

A
  1. initial expenses, which arise at the start of the policy term
  2. renewal expenses, which arise regularly during the policy term
  3. termination expenses, which arise when the policy terminates
  4. investment expenses, which relate to the management of the company’s assets.

This will usually be based on an analysis of the expenses by department or function.

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8
Q

Each of the initial, renewal and termination expenses can be further split according to whether the expense is proportional to: (3)

A
  1. the number of contracts written or in force
  2. the amount of premium written or in force
  3. the amount of benefit written or in force
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9
Q

the main items of expenses are: (4)

A
  1. salaries and salary-related expenses
  2. property costs
  3. computer costs, and
  4. investment costs
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10
Q

What are the common ways of dealing with the overhead component? (3)

A
  1. splitting them down in proportion to direct expenses already identified
  2. splitting them in proportion to expense charges from the policies
  3. splitting them down in proportion to something else. e.g. in proportion to the number of “new business” / “renewal” etc staff they serve.
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11
Q

What are the common ways of dealing with the overhead component? (3)

A
  1. splitting them down in proportion to direct expenses already identified
  2. splitting them in proportion to expense charges from the policies
  3. splitting them down in proportion to something else. e.g. in proportion to the number of “new business” / “renewal” etc staff they serve.
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12
Q

A company will want to analyse the surplus arising over a year, for example on its supervisory basis in order to: (6)

A
  1. show the financial effect of divergences between the valuation assumptions and the actual experience, exposing which assumptions are more financially significant.
  2. show the financial effect of writing new business
  3. provide a check on the valuation data and process, if carried out independently
  4. identify any non-recurring components of surplus, thus enabling appropriate decisions to be made about the distribution of surplus to with-profits policyholders.
  5. give management information on the trends in experience of the company
  6. comply with regulatory requirements
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13
Q

A company may analyse the change over a year in its embedded value. This will allow the company to: (5)

A
  1. validate the calculations, assumptions and data used.
  2. reconcile the values for successive years
  3. provide management information
  4. provide data for use in executive remuneration schemes
  5. provide detailed information for publication in the company’s accounts or those of any parent company, in particular the value of new business taken on by the company.
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14
Q

The sort of management information that analysis of EV movements will give is: (6)

A
  1. the value of new business written, normally by product
  2. the amount of any expense profit or loss
  3. the amount of any mortality profit or loss
  4. the amount of any withdrawal profit or loss
  5. the impact of free assets on the embedded value growth
  6. the impact of supervisory minimum solvency margin requirements on the rate of return achieved.
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15
Q

Examples of using the results: (18)

A
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16
Q

Examples of using the results - w.r.t Products: (3)

A
  1. updating the pricing basis
  2. revising product design
  3. changing the product mix/ launching new products
17
Q

Examples of using the results - w.r.t Risk management: (2)

A
  1. revising the underwriting process

2. revising the reinsurance arrangements

18
Q

Examples of using the results - w.r.t Persistency: (3)

A
  1. implementing or improving retention activity
  2. changing the marketing message, target market and/or distribution channel
  3. revising sales procedures in terms of training and selection of distributors, wording and format of sales literature and the mechanics of any commission payments and clawback
19
Q

Examples of using the results - w.r.t Operations & Admin: (4)

A
  1. improving the wording of policy contracts
  2. improving the adequacy of the staffing resources
  3. improving systems and data recording processes
  4. improving actuarial models
20
Q

Examples of using the results - w.r.t Finance & Investments: (5)

A
  1. changing the investment strategy
  2. changing the with-profits surplus distribution approach
  3. updating the reserving basis
  4. raising capital
  5. altering the capital allocation methodology

F102 Life Insurance Principles (31 decks)

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