Final Day

Question 1

Features of Unitised

Answer 1

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

Question 2

How to determine AS

Answer 2

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…

Question 3

What’s the 2 AS deduction usually forget

Answer 3

Cost of capital support required in early years

Commissions paid

Question 4

Individual Asset Share formula

Answer 4

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)

Question 5

Using asset share for SV/MV/DV

Answer 5

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.

Question 6

Two things usually forget in reserve principles

Answer 6

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

Question 7

Costs of distribution channels

Answer 7

Mainly variable
Salary
Commission
Set-Up for direct-sales
Marketing
Administration (IT/Underwriting)

Question 8

Payments of Sales Channels

Answer 8

IFA - Commission/fee
Direct Sales - Commission/Salary/mix
Tied - Commission/Salary + Bonuses

Question 9

Initiators in sales channels

Answer 9

IFA - Client, then IFA (reviews)
Direct Sales - Salesman, then client
Tied - Client, sometimes Agent actively engages
Direct marketing - generate initial client interest

Question 10

How to calculate PVFP of:

Conv Without Profits
Conv WP
UL?

Answer 10

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

Question 11

In most calculation models what’s needed?

Answer 11

MP's EB
Projection of profits
Term of projection
Scale up projection for whole portfolio
Discount at risk discount rate
Allowance for tax

Question 12

Possible homogeneous groups

Answer 12

Age
Sex
Premium Size/Frequency/Payment method
DUR_IF
Type of contract
Orig_Term_Y
Distributor/Sales channel/Target market

Question 13

11 Assumptions

Answer 13

Mort
Expenses
Expense Inflation
Inv Ret
Tax
Future bonuses on WP
3 Withdrawals (surrender/lapse/PUP)
Volume/mix NB

Question 14

Features of contracts taken into account in design?

Answer 14

Type
Guaranteed/Review-able premiums
Charge types
Surrender value method and basis
Level of guaranteed benefits

Question 15

What 6 experience investigations are there?

Answer 15

Mort
Withdrawal
Expense
Investment returns
AOS
AOEVProfit

Question 16

Why do we do an experience investigation? What do they all need?

Answer 16

FURMI
Find EAS
Update future assumptions/model (pricing/valn/ev)
MI
Identify adverse trends, take action

DATA
Volume
Stable
Consistent
Complete
No errors

Question 17

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?

Answer 17

The period collected
Credible, Homogeneous groups
At least by type of contract

Question 18

Withdrawal Experience Process, including PUP

Answer 18

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

Question 19

Expense Experience Process

Answer 19

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

Question 20

Pricing Model Procedure

Focus on last few

Answer 20

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

Question 21

Difference between 2 types of x o l

Answer 21

Cat, reinsure cover all claims arising over insurers retention in single event

Stop loss, reinsurer covers total claims over retention limit over a period