Exam Learning Flashcards
What do you need to consider to assess claims experience?
- Recent data taken (past few years) so relevant
- Trends e.g. claim amount inflation
- Homogeneous groups (risk cells) split by risk factors
- Credible groups
- Volumous
- Stable
- Consistent
- Consider competition
- Analyse overall experience then by subdividing eg. by member/type
- Split by:
Given list
How will data for an experience investigation by split (and analysed if credible)?
- Type of contract
- Age/Sex/Location
- Smoker status
- Marital status
- Job/Industry (group)
6, Source of business - Dur_if
- Dur_claim
- Benefit conditions e.g. deferred period length
- Underwriting status
- Size of group (group)
What data would you look at for a PMI claim experience investigation?
- Excess amount (PMI)
- NCD status (PMI)
- Hospital band (PMI)
- Type of procedure (PMI)
- Actual and expected claims (PMI)
- Surgeon/Consultant (PMI)
- Trend in claim amount escalation vs competitors/standard price index (PMI)
Process of an expense experience investigation? (unit 14, 3.10)
- Split expenses into and analyse by required cells
- A possible split of expenses may be by
a) Salary/Salary related expenses
b) Property Costs
c) Computer costs
d) Investment costs
e) One-off capital costs (excluding computer purchases) - Exceptional items unlikely to reoccur will be excluded from the analysis
- A possible split of cells may be by:
a) Whole business of insurer
b) Business fund
c) Product line - We may divide further by single/regular premium
- Split also by RAPID COST
a) Initial/renewal cost
b) Claim
c) Termination
d) Investment - Split also by direct costs vs. overheads
- Commission excluded
- May be exceptions
Salary and Salary Related Expenses
- Make up large part of expenses as administering is labour intensive
- Fixed in real terms in short term
- Variable in longer term to meet changing levels of NB/EB
- Can split into groups by:
a) Staff who work in only one cell
b) Staff working in more than 1 cell
c) Staff entirely on overheads
d) Staff mixed with direct costs and overheads - For a) can directly allocate expense to cell, for b) use timesheet to proportion
- c) staff are obvious, d) staff split pragmatically
Property costs
- Notional rent to be charged for occupying building it owns
- Split by floor space in allocate according to salary
Computer costs
- Amortise cost of new computer over useful lifetime
- Allocate according to usage or something else sensible
Investment costs
20. Directly allocate to investment expenses and allowed for in investment returns
One-off capital costs (other than new computer)
- Amortise these over useful lifetime of item
- Include in overheads
What are the large splits in an expense experience analysis? What isn’t included?
- A possible split of expenses may be by
a) Salary/Salary related expenses
b) Property Costs
c) Computer costs
d) Investment costs
e) One-off capital costs (excluding computer purchases) - Exceptional items unlikely to reoccur will be excluded from the analysis
What is the staff split in an expense experience? How are expenses allocated to them.
- Can split into groups by:
a) Staff who work in only one cell
b) Staff working in more than 1 cell
c) Staff entirely on overheads
d) Staff mixed with direct costs and overheads - For a) can directly allocate expense to cell, for b) use timesheet to proportion
- c) staff are obvious, d) staff split pragmatically
Property costs
What are the required ‘cells’ in expense experience?
- A possible split of cells may be by:
a) Whole business of insurer
b) Business fund
c) Product line
How to split property/computer/investment/one-off costs in expense experience?
Property costs
- Notional rent to be charged for occupying building it owns
- Split by floor space in allocate according to salary
Computer costs
- Amortise cost of new computer over useful lifetime
- Allocate according to usage or something else sensbile
Investment costs
20. Directly allocate to investment expenses and allowed for in investment returns
One-off capital costs (other than new computer)
- Amortise these over useful lifetime of item
- Include in overheads
Explain the salary/salary-related expenses in expense experience
Salary and Salary Related Expenses
- Make up large part of expenses as administering is labour intensive
- Fixed in real terms in short term
- Variable in longer term to meet changing levels of NB/EB
- Can split into groups by:
a) Staff who work in only one cell
b) Staff working in more than 1 cell
c) Staff entirely on overheads
d) Staff mixed with direct costs and overheads - For a) can directly allocate expense to cell, for b) use timesheet to proportion
- c) staff are obvious, d) staff split pragmatically
If date of first sickness is 1/1/2012 and notification is 5/4/2012, with a 6 month deferred period, when is payout started?
1/7/2012
Give the reasons to reinsure headings (unit 11, 1)
SAD LIFE (RST) Smooth results Avoid single large losses Diversify risk Limit exposure to risk Increase capacity to accept NB volumes Financial assistance Expertise Regulatory/Solvency/Tax Arbitrage
List personal circumstance changes that MUST be disclosed
Age Sex Location of living (address/territory) Occupation Alcohol consumption Smoker status/habits Drug use Personal health Family health Hazardous leisure activities taken up Frequency/duration of overseas travel
Describe how to find a retention limit (unit 11, 8)
- There are 2 possible ways to do determine a retention limit
Method 1: (minimum of reinsurance + fluctuation reserve) - Sum of the following 2 costs:
a) Cost of reinsurance
b) Cost of financing a risk experience fluctuation reserve (use simulation approach below to find) - If retention limit increases, (a) decreases and (b) increases
- We can find an optimum retention by finding min(a+b)
Method 2: (Simulated solvency levels) - Set a retention level to keep probability of insolvency below a specified level
- ie. Find retention level s.t the company stays solvent for 995/1000 scenarios say. Do this by:
- Use stochastic model for expected claim rates
- Estimate statistical distribution of risk experience costs based on varying retention limits
- Use stochastic model for expected claim rates
- Project expected claims, company assets and liabilities together
What are the 2 ways to determine a retention level? (unit 11, 8)
- Minimise sum of Cost of Fluctuation Reserve + Cost of Reinsurance
- Determination by simulation of solvency levels (99.5th percentile)
Why use initial underwriting for risk management? (unit 12, 1.2)
FORE AIDSS-APP
- Anti-selection - protect from
a) Particularly those lives who are so seriously impaired it’s impossible to assess the risk accurately
b) AS can lead to higher than expected Frequency/Cost of claims - Identify substandard lives whom special terms must be quoted
a) Note that a company would aim to write a large proportion of business on standard rates - Identify appropriate approach/premium level for 2.
- Fair classification of all risks
- Ensure morbidity experience = expected in pricing
- Reinsurance requires/better terms
- Over-insurance - reduce risk in large proposals
