Extras 5

Question 1

Give disadvantages of propsepective SV

Answer 1

total SV’s might be > total EAS
Possible unreasonable SV’s early on
Small changes in interest rate, for long durations, have big SV effect

Question 2

Advantage of prospective SV

Answer 2

SV’s -> maturity value for without profits
Comparable to auction values
more likely comparable to competition
Easy to do, doesn’t require knowledge of past

Question 3

How does a company profit from SV’s?

Answer 3

Pay out less that EAS

ie. profit is EAS-SV

Question 4

What is the formula for Profit retained?

Answer 4

(EAS-SV(pricing assumps)) + (SV(pricing) - SV(actual assumps used))

Question 5

What is EAS-SV(pricing)

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

Answer 5

Profit made to date

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

Question 6

How do you choose assumptions for SV?

Answer 6

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

Question 7

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

Answer 7

Blended, pricing near start, best estimate near end

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

Question 8

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

Answer 8

Make sure SV not above EAS

Question 9

What actual experience is used in retrospective SV calcs?

Answer 9

Investment earnings
mortality
expenses
tax

Question 10

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

Answer 10

Smooth the value

Question 11

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

Answer 11

Interest (most important)
Expenses
Inflation
Mortality
Tax

Question 12

How to pick interest rate assumption in Prospective SV?

Answer 12

Premium basis if using those assumptions

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

Question 13

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

Answer 13

Recent expense investigation
Those used in recent pricing
BE
Renewal commission

Question 14

How to pick inflation rate assumption in Pros SV?

Answer 14

Consistent with investment return

Use real return - investment return on FI to get inflation

Question 15

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

Answer 15

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

Question 16

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

Answer 16

Stop paying premiums, SA reduces

T’s and C’s stay same

Question 17

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

Answer 17

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

Question 18

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

Answer 18

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 19

Why might a policy be altered?

Answer 19

Mismatch between policy and risks ph faces changes

Question 20

How can P/H match current risks?

Answer 20

Purchase additional policy/alter current one