Extras 6 Flashcards
3 alteration examples
SA change
Premium change
Term change
How do you change term of a WOL
Convert to EA
Equivalent of reducing term to 0?
Equivalent of reduce SA so no premiums needed?
Equivalent of increasing SA?
SV
Paid up SA
Purchase new policy for increment at current rates
Principles on calculating PUP SA
What is the key one for all alterations?
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
Why should alterations be supported by EAS?
Avoid company losses
How would profits look after alteration?
Same as expected amount if policy had originally been written on altered terms
Or
Same profit had it not been altered
Principles of General Alterations
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
Methods of alteration
Proportionate PUP value Equating policy value Surrender value respread PUP value plus premium for balance of SA Accumulation of premium arrears/surplus
Prop PUP value What products? Formula for calculation? Advantage? Disadvantage?
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
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
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)
Method of Surrender value respread?
Advantage?
Disadvatnage?
Calc premium on current premium basis for post-alteration
Calculate surrender value of existing contract making allowance for inital expenses
Reduce premium by spreading surrender value over outstanding term and deducting
A=Simple
D=not consistent with all terms offered
PUP Policy value plus premium for balance of SA
What can’t it be used for?
Disadvantage?
Conversion to PUP
Won’t reporoduce orginal premium if policy altered to itself
Accumulation of premium arrears/surplus
What can’t it be used for?
How does it work?
Conversion to PUP
Find premium if policy had been in new form from outset
Accumultate it to now
Adjust premium now by this
Product Design Factors
Profitability and its sensitivity Marketability Consistency with other products Competitiveness Financing Risk level Onerousness of guarantees X-subsidies Admin systems Regulations - TCF/Max charges Tax
What does non-unit reserve include?
Expenses, charges, benefits in excess of unit fund
