Chapter38-Surplus and surplus management

Question 1

Framework

Answer 1

1 Surplus and surplus arising
2 Reasons for analysing surplus (DIVERGENCE)
3 Importance of analysing surplus periodically
4 Projecting expected experience in an analysis of surplus
5 Isolating impact of sales and mortality in an analysis of surplus
6 Sources of surplus
7 Levers of surplus
8 Controlling claim frequency
9 Controlling claim amount/ benefit
10 Controlling expenses
11 Increasing renewals and decreasing withdrawals
12 Decreasing investment return deficit
13 Tax efficient policy
14 Issues to consider when determining amount of surplus to distribute in a life insurance company
15 Uses of surplus in a benefit scheme
16 Issues to consider when a DB pension distributes surplus

Question 2

Reasons for analysing surplus

Answer 2

Divergence of actual vs expected (show financial effect / significance of)

Information to management and for accounts

Variance as a whole is equal to the sum of the variances from the individual levers

Experience monitoring to feedback into ACC

Reconcile values for successive years

Group into one-off / recurring sources of surplus

Executive remuneration schemes (data for)

New business strain (show effects of)

Check on valuation assumptions and calculations

Extra check on valuation data and process

Question 3

Levers of surplus

Answer 3

Levers on surplus are factors that management can use to control the amount of surplus arising.