Extras 10

Question 1

What is EAS-SV(pricing)

SV(pricing)-SV(actual surrender assumps used)

Answer 1

Profit made to date

Value of profit that would arise in future due to prem rate and surrender value assumption differences

Question 2

How do you choose assumptions for SV?

Answer 2

Somewhere between best estimate from now (profit that would be made is policy continues) and pricing assumptions (profit made to date)

Question 3

What basis on assumptions would be used for the prospective assumptions? Why?

Answer 3

Blended, pricing near start, best estimate near end

Depends on how early want to claim profit as if not surrendered

Question 4

How can you avoid lapse and re-entry to do with surrender values?

Answer 4

Make sure SV not above EAS

Question 5

What actual experience is used in retrospective SV calcs?

Answer 5

Investment earnings
mortality
expenses
tax

Question 6

Why won’t actual investment earnings be used in regular premium Retro SV’s?

Answer 6

Smooth the value

Question 7

What assumptions will be used to find prospective SV’s. What is the most important?

Answer 7

Interest (most important)
Expenses
Inflation
Mortality
Tax

Question 8

How to pick interest rate assumption in Prospective SV?

Answer 8

Premium basis if using those assumptions

Weighted average redemptions yield of FI liabs that it holds to back liabs

Question 9

How to pick expense assumptions in Pros SV?
BE/Prudent?
What allowance needs to be made?

Answer 9

Recent expense investigation
Those used in recent pricing
BE
Renewal commission

Question 10

How to pick inflation rate assumption in Pros SV?

Answer 10

Consistent with investment return

Use real return - investment return on FI to get inflation

Question 11

How is mort assumption different from past experience in Pros SV?
Is it important?

Answer 11

Expected future mortality of those surrendering
Which is LIGHTER than those not
Will not have much effect on results

Question 12

What happens when make a policy PUP, what stays the same?

Answer 12

Stop paying premiums, SA reduces

T’s and C’s stay same

Question 13

What is making a policy paid up, equivalent of doing?

Answer 13

Using value of the original policy to purchase a single premium policy for new SA at PUP date

Question 14

Give 2 reasons why PUP basis would be different than SV basis?

Answer 14

Alteration cost is different

Mortality selection reduces as policy still in force (mortality for those left won’t be as bad as in surrenders)

Question 15

Why might a policy be altered?

Answer 15

Mismatch between policy and risks ph faces changes

Question 16

How can P/H match current risks?

Answer 16

Purchase additional policy/alter current one

Question 17

3 alteration examples

Answer 17

SA change
Premium change
Term change

Question 18

How do you change term of a WOL

Answer 18

Convert to EA

Question 19

Equivalent of reducing term to 0?
Equivalent of reduce SA so no premiums needed?
Equivalent of increasing SA?

Answer 19

SV
Paid up SA
Purchase new policy for increment at current rates

Question 20

Principles on calculating PUP SA

What is the key one for all alterations?

Answer 20

Should be:
Supported by EAS at date of conversion and expected future experience (key)
Consistent with Mat Vals at later duration, reduced for just premiums not recieved
Surrender values before and after conversion approximately equal