Extras 12 Flashcards
How can withdrawal rate be calculated
1-(#pols at end of year)/#pols at start (exclude deaths and maturities)
Why do an AOS for monitoring experience?
MI on experience
Regulations
Show financial effect of NB
Show financial effect of divergence between actual and expected assumptions
Check valuation data and process
Identify one-off surplus items, enable decisions on WP bonuses
Why do an AOEV
MI Account information Validate calculations/data/assumptions used Reconcile values for successive years Exec Remuneration
What will you do once a experience investigation, AOS, AOEV is complete?
Update views regarding future experience
Change assumps/models in pricing/valuation
Actuaries aren’t fortune tellers, so if we do it a million times we still won’t exactly be right
Split expenses into 2 groups
Direct (related directly to Volume of NB or level of in force)
Overheads (balance, relate to general management and service)
Split non-commission expenses into 4
Initial/renewal/terminal/investment
What are the expense amounts proportional to?
contracts written/in force
SA written/in force
Premium written/in force
How do we proportion out marketing/ underwriting/ investment expenses
Related to init commission paid
related to size of benefit
percentage of funds under management
4 Main types of expense and examples
Salary/salary related
Property (rent/heat/light/cleaning)
Computer
Investment (commission/stamp duty/investments department)
Features of Unitised
Fund value guaranteed to grow at minimum rate (possibly 0)
Bonuses added in excess of that minimum
Share in profits/losses of fund
Explicit relationship in premiums/benefits value
Operates like UL, unit price not calculated same
FV has Increase in unit price/number of units
Surr = bid val - surr pen - MVR
Mat = bid val + TB
Death = max(guarantee, bid val + TB)
Prem = single/recurring lump sum or regular
Explicit or Implicit charges (bonus reduction)
Explicit Charges = AMC/Pol fee/B-O spread/Allocation rate
How to determine AS
Retrospective accumulation of past premiums minus deductions, RECURSIVELY @ actual investment return achieved
Approximations to actual investment return may be needed e.g. index
Individual policy or group calculations
May be smoothed
Deductions include…
What’s the 2 AS deduction usually forget
Cost of capital support required in early years
Commissions paid
Individual Asset Share formula
AS(t+1)=AS(t)+P-E(t) - q * S(t) - T(t) all over (1-q)
q = average mortality rate during year
T = transfer to shareholders
S = average amount paid out on death at end of year (includes RB and TB)
Costs of distribution channels
Mainly variable Salary Commission Set-Up for direct-sales Marketing Administration (IT/Underwriting)
Payments of Sales Channels
IFA - Commission/fee
Direct Sales - Commission/Salary/mix
Tied - Commission/Salary + Bonuses
Initiators in sales channels
IFA - Client, then IFA (reviews)
Direct Sales - Salesman, then client
Tied - Client, sometimes Agent actively engages
Direct marketing - generate initial client interest
How to calculate PVFP of:
Conv Without Profits
Conv WP
UL?
PV(Prem+inv income-expenses-benefits paid+reserve release)
PV(S/H Transfers e.g. from bonus distribution)
PV(UF[Charges-Expenses]-Benefits in excess of unit fund
+ Inv Inc on non_u_res
+ release of on NON_U_RES
In most calculation models what’s needed?
MP's EB Projection of profits Term of projection Scale up projection for whole portfolio Discount at risk discount rate Allowance for tax
Possible homogeneous groups
Age Sex Premium Size/Frequency/Payment method DUR_IF Type of contract Orig_Term_Y Distributor/Sales channel/Target market
11 Assumptions
Mort Expenses Expense Inflation Inv Ret Tax Future bonuses on WP 3 Withdrawals (surrender/lapse/PUP) Volume/mix NB
Features of contracts taken into account in design?
Type Guaranteed/Review-able premiums Charge types Surrender value method and basis Level of guaranteed benefits
What 6 experience investigations are there?
Mort Withdrawal Expense Investment returns AOS AOEV Profit
Why do we do an experience investigation? What do they all need?
Find EAS
Update future assumptions/model (pricing/valn/ev)
MI
Identify adverse trends, take action
DATA Volume Stable Consistent Complete No errors
Difference between 2 types of x o l
Catastrophe, reinsurance cover all claims arising over insurers retention in single event
Stop loss, reinsurer covers total claims over retention limit over a period
