F_Extras 3

Question 1

descartes : Reasons for using ART

Answer 1

diversification 
exploit risk as an opportunity 
solvency improved, it may provide a source of capital
cheaper cover than reinsurance
available when reinsurance may not be
results smoothed
tax advantages
efficient risk management tool
security of payments improved

Question 2

sir mapemap : Uses of data

Answer 2

statutory returns
investments
risk management

management management information and financial control
accounting 
pricing 
experience statistics and analyses
marketing 
administration 
provisioning

Question 3

I c maddogs : Reasons for valuing liabilities

Answer 3

investment strategy

contribution or premium setting

mergers and acquisitions
accounts reporting in internal or published accounts
discretionary benefits valuing and potential benefit improvements
discontinuance benefits
options setting options terms
guarantee costing
statutory requirements and reasons - funding valuation, providing information to beneficiaries

Question 4

sir mapemap : Uses of data

mapemap

Answer 4

management management information and financial control
accounting 
pricing 
experience statistics and analyses
marketing 
administration 
provisioning

Question 5

sir mapemap : Uses of data

sir

Answer 5

statutory returns
investments
risk management

Question 6

sounder tractors : Factors affecting investment strategy

tractors

Answer 6

tax treatment of assets and investor, e.g. high income tax vs low CGT tax
restrictions statutory, legal or voluntary restrictions
accrual of future liabilities
currency of the existing liabilities
term of the existing liabilities
other strategies adopted by other funds or competitors
risk appetite
solvency requirements

Question 7

CI Total and permanent disability

Answer 7

Often TPD included with CI as benefits complementary, but may also overlap, so TPD can be added for little extra cost.

• Different to income protection as disability should be permanent.
• Can be difficult to establish permanence, common to use waiting periods. If clear, benefit usually paid despite waiting period.
• Combination of severity of condition and extent of disablement, CI usually does not consider the effect of the illness.- may be occupation based, ADL or ADWs.

Question 8

CI Group version

Answer 8

• can be used by employer via group policy to attract/retain staff
• can be used when income protection is not available, can be combined with a group TPD benefit

Question 9

CI Capital Requirements

Answer 9

• similar capital requirements as for an IP product.

- reserve may be required for late notified claims

Question 10

LTC Customer needs addressed

Answer 10

Provides financial protection when a person becomes unable to look after her or himself.

Policy triggers when incapacity sets in.

May also be purchased to cover the care for someone else who the purchaser feels responsible for.

Usually a fixed cash benefit, does not provide indemnity.

Need usually realised only after retirement.

Question 11

What data is needed in the conventional method?

Answer 11

Sel/Ult mortality tables

Question 12

Give a problem with the conventional method?

How to get around it?

Answer 12

If multiple options/take up dates can’t be used

Choose worst option from a financial point of view is chosen with Probability 1.

Question 13

Give the principle of surrender values

Answer 13

Take into account:

Simple

PRE
Equitable treatment of continuing and surrendering
TCF
SVmaturity, SV->Mat value

Discontinuities - don’t suffer by duration
Documented - clearly

Competitors - take account of them
Change - not too frequent

Minimal - Not exceed EAS in aggregate
Early - Not appear too low at early durations vs. premiums paid

Question 14

Why don’t term assurance have SV?

Answer 14

Anti selection reduced
Cheaper premiums
Small reserve release anyway (reserves don’t tend to the sum assured)

Question 15

What does A with a line on top of it mean?

Answer 15

An assurance of 1 payable at the exact moment of death

Question 16

To calculate a proper retrospective reserve, not formula driven, what do you need?

Answer 16

Up to date EAS for reach policy

Question 17

Give a formula for retrospective SV

Answer 17

(1+i)^t  * 1/tPx * (Pax:t - SA(x:t)-I-Ra(x:t) - DA(x:t)) -  C
P = premiums annual
S = SA
I = Initial expenses
R=Renewal expense
D=Claims expense
C = Charge for surrendering (admin type)

Question 18

Give a formula for prospective SV

Answer 18

SA(x:t) + Ra(x:t) + DA(x:t) - Pa(x:t) - C

Value of Future sum assured plus expenses net of future premiums and charge

Question 19

What does retrospective reserves represent, why is it not that good for companies?

Answer 19

The EAS at surrender, takes all the profits away so no loss, no gain. Profit = EAS-SV

Question 20

Give 2 disadvantages of retrospective

Answer 20

SV does not run into Mat Value

Not say anything about what profit would have been made, so equity between policyholders hard