Extras 11

Question 1

Accumulation of premium arrears/surplus
What can’t it be used for?
How does it work?

Answer 1

Conversion to PUP
Find premium if policy had been in new form from outset
Accumulate it to now
Adjust premium now by this

Question 2

Product Design Factors

Answer 2

Profitability and its sensitivity
Marketability
Consistency with other products
Competitiveness
Financing
Risk level
Onerousness of guarantees
cross subsidies
Admin systems
Regulations - TCF/Max charges
Tax

Question 3

What does non-unit reserve include?

Answer 3

Expenses, charges, benefits in excess of unit fund

Question 4

How is a non-unit reserve set up

Answer 4

Discounted Cashflows of charges-expenses-extra benefits projected forward
Go to last date it’s negative
Set up amount at start of that time step to make net cashflow in period 0
Take that amount off the net cashflow of previous period (making more negative)
So non-unit reserves always >=0
So non-unit reserve covers all negative net cashflows if hadn’t been set up.

Question 5

What can sensitivity analysis be used for?

Answer 5

To find MAD’s for supervisory reserves

Enable set up of any global reserves needed to cover potential FAD’s

Question 6

What is solvency capital? Why use it? What combination needs to be looked at?

Answer 6

Solvency requirement required by supervisory authority
Add additional safety for policyholders
Reserves and Solvency requirements should be looked at together in their calculation.
(realistic reserves+ large solvency requirement) or prudent reserves but solvency requirement less based on risks)

Question 7

What 3 ways are there to allow for risk in cashflow model?

Answer 7

risk discount rate
stochastic model
margins for adverse deviation

Question 8

What is EV

Answer 8

Sum of shareholder share of net assets and present value of future shareholder profits on EB

Question 9

Why monitor experience?

Answer 9

Find EAS
Update assumptions
Monitor experience trends and take action
MI

Question 10

What do we need in data?

Answer 10

Volume
Consistent
Credible homogeneous groups
No errors
Complete

Question 11

What’s the minimum desire for homogeneous groups

Answer 11

Separate by contract type

Question 12

What effects withdrawal rates?

Answer 12

Economy
Competitiveness of product
Better products reach market
Perceived value of product to consumer

Question 13

Why should alterations be supported by EAS?

Answer 13

Avoid company losses

Question 14

How would profits look after alteration?

Answer 14

Same as expected amount if policy had originally been written on altered terms
Or
Same profit had it not been altered

Question 15

Principles of General Alterations

Answer 15

Supportable by EAS
Costs are recovered
Increases in benefit subject to additional health evidence (depend on amount/time in policy)
Lapse/re-entry avoided by terms
Stable changes - small changes, if expenses incurred in alteration are ignored

Benefit increase consistent with buying new policy for increase
Conversion to PUP is limiting case of reduction in SA
Surrender is limiting case of reduction in term

Question 16

Methods of alteration

Answer 16

Proportionate PUP value
Equating policy value
Surrender value respread
PUP value plus premium for balance of SA
Accumulation of premium arrears/surplus

Question 17

Prop PUP value
What products?
Formula for calculation?
Advantage?
Disadvantage?

Answer 17

Without profits EA
PUP value = SA * (total prem paid so far/total prem payable)
A = Very simple to apply and explain
D = Unlikely to be consistent with SV’s

Question 18

Equating policy values
What types of alteration?
What do we do?
Formula equating values for a PUP SA?
What is included if just change SA, not make PUP

Answer 18

Any type
Equate policy values (surrender) on a retro/prosp basis to prospective value after alteration
PUSAA(x+t) + R * a(x+t) + DA(x+t) = SV(t)
R = renewal expense
D = death claim expense
Have a -Pa(x+t) and +C (alteration cost)

Question 19

Method of Surrender value re-spread?
Advantage?
Disadvantage?

Answer 19

Calc premium on current premium basis for post-alteration
Calculate surrender value of existing contract making allowance for initial expenses
Reduce premium by spreading surrender value over outstanding term and deducting
A=Simple
D=not consistent with all terms offered

Question 20

PUP Policy value plus premium for balance of SA
What can’t it be used for?
Disadvantage?

Answer 20

Conversion to PUP

Won’t reproduce original premium if policy altered to itself