Final Day Flashcards
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)
Using asset share for SV/MV/DV
SV Equal AS over long term Used to determine TB, if any MV Equal AS over long term Used to determine TB, if any DV Usually guranteeds Death Benefit is greater, so ignore.
Two things usually forget in reserve principles
Interest assumption reflect currenct of policy and expected future yields
Reserves should be above any SV
D/W/Expense assumptions reflect Type/Territory and Expected future costs
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 AOEVProfit
Why do we do an experience investigation? What do they all need?
FURMI Find EAS Update future assumptions/model (pricing/valn/ev) MI Identify adverse trends, take action
DATA Volume Stable Consistent Complete No errors
What’s it important is agreed with collection of data?
What’s it’s important data can be divided into?
At least divided by what?
The period collected
Credible, Homogeneous groups
At least by type of contract
Withdrawal Experience Process, including PUP
Data - time period
Data - Homogenous groups
Split by - type/dur_if/frequency/size/benefit amount/payment method
Effected by - economy/needs/competition/new products
Calculate - First year - 1-(#pols ye)/#pols start exc. mort/mat, 2nd year is same etc.
PUP usually a secondary investigation
Expense Experience Process
Data - time period
Data - groups
Split 1 - Direct/Overheads
Split 2 - non-commission expenses
Initial/Ren/Term/Investment
Split 3 - 2 by department/function
Split 4 - 3 by #contracts, total benefit, total premium written/in force
Exceptions are marketing (init_comm)/underwriting (size of benefit)/Invesmtnet expenses (% fund under management)
Split 5 - Salary/Property/Computer/Investment
Split 6 - Proportion out 5
Exceptional items aren’t included or are proportioned through life time
Pricing Model Procedure
Focus on last few
Model points on EB Assumptions decision Parameters decision Best estimate assumptions Risk discount rate on shareholder required rate adjusted for risk Project expected Cashflows Deduct increase in reserves add interest Discount each year at rdr and calculate profit criteria Assess marketability Scale up to overall business Sensitivity test Change until satisfactory Produce full set of prices for offer
Difference between 2 types of x o l
Cat, reinsure cover all claims arising over insurers retention in single event
Stop loss, reinsurer covers total claims over retention limit over a period
