Q&A Bank P3 Flashcards
define unexpired risks
these are risks in respect of the portion of policies written that lies beyond the reserve calculation date for which premiums have already been received.
discuss the factors the insurer should consider when calculating its reserves fro unexpired risks
-the allowance for UR will consist of a UPR and if necessary, an extra allowance called the additional unexpired risk reserve.
the 2 will cover the allowance for both future claims and associated expenses on the unexpired portion of cover.
an assumption as to how business is sold throughout the year will be needed.
an assumption on the length of cover provided by the policies is also needed.
an alternative and more accurate approach would be to use the actual unexpired period calculated on a policy by policy basis in which case the last 2 assumptions are not required.
*****- not complete
list the cashflows that would form part of a pricing model
- premiums received
- claims outgo
- expenses
- commission
- investment return
- change in reserves
- profit
- tax
list additional items and considerations required to determine the final premium that is charged, in addition to the risk premium
-expenses - contribution to overheads
-tax
-commission + other direct expenses
-reinsurance premiums
-investment returns
-solvency capital requirements
-profit requirements (shareholders required return)
-marketability / competitiveness at the price given the design
-rates charged by existing insurers in the group or individual CI market
-cross subsidies with other products
-regulatory requirements and restrictions
-free cover limits as well as other underwriting measures in product design
compulsory vs voluntary membership
describe methods of underwriting LTCI
- For prefunded product would need medical underwriting
- Consider family history
- Needs to address risk of inception
- But not be barrier to entry (high cost)
- For immediate needs need to assess longevity
- Level of competition in the market will affect how mortality adjusted (impaired)
What charges are likely to be applied to reviewable unit-linked standalone critical illness insurance policies
- Morbidity charge
- Investment charge
- Management charge
- Policy fee
generally
- Charges need to be competitive
- May be a requirement for disclosure
Describe the investigations the company is likely to undertake to determine whether Morbidity charges should be reviewed.
o Inception rates per covered condition
o By rating factor eg age, gender, occupation
o Likely to vary by sum assured
o May need to supplement with reinsurance experience
o Needs to have margin for cost of capital associated with guaranteed sum assured
generally
- Charges need to be competitive
- May be a requirement for disclosure
Describe the investigations the company is likely to undertake to determine whether Investment charges should be reviewed.
o Experience analysis of direct investment costs
o Likely to vary per investment portfolio e.g. more for equity and overseas exposure
generally
- Charges need to be competitive
- May be a requirement for disclosure
Describe the investigations the company is likely to undertake to determine whether Management charges should be reviewed.
o Need to conduct full expense analysis
o Including direct and indirect costs
o Including claim settlement costs (allowing for reinstatements)
generally
- Charges need to be competitive
- May be a requirement for disclosure
Describe the investigations the company is likely to undertake to determine whether Policy fees should be reviewed.
o May be an upfront charge to recover initial sales costs
o An policy issuing costs
generally
- Charges need to be competitive
- May be a requirement for disclosure
Outline the assumptions that you would need to assess the profitability of a CI portfolio
- Model Points that are representative of portfolio being transferred would be needed
- Lapse rates
- Investment returns
- Renewal rates
- Risk discount rate allowing for:
- the return required by the company,
- and the level of statistical risk attaching to the cash flows under the contracts.
- If the products provide “funding for care”, then appropriate adjustments should be made for claims inflation as this will impact the claims amount to be paid out in future and hence, the profitability.
- Incidence rates of critical illnesses covered allowing for:
- Medical advances and projected changes in disease burden
- Assumptions surrounding duration of care would need to be taken into account for LTC business
- Need to consider assumptions possible changes in provision of state benefits
- Changes is persistency post acquisition e.g. large lapses
- Rates of exercising product options
Outline the data sources that you would use to derive assumptions that you would need to assess the profitability of a CI that the insurer is purchasing
- Seller of the portfolio could provide model points
- Maybe provided from previous valuation
- Industry tables could be used for incidence rates
- If industry tables are unavailable population tables could be sourced
- With necessary adjustments for insurer population
- Reinsurer may also assist with data or
- Provide guidance in making adjustments
- Previous published accounts could be used to derive estimates of lapse and renewal rates
Outline how you would evaluate the statistical risk associated with your assumptions.
- in some situations analytically, by considering the variances of the individual parameter values used
- by using sensitivity analysis with deterministically assessed variations in the parameter values
- by using stochastic models for some, or all, of the parameter values
- Attention must be given to assumptions which the profitability valuation displays most sensitivity
describe the Exchange rate risk for a health insurer that would be associated with selling a medical expense product in a neighbouring country.
- Premiums may be received in the neighbouring country currency or the current country currency, and if the product provides indemnity, claims will be paid in the neighbouring country currency.
- The expenses of the subsidiary will mainly be in the neighbouring country currency.
- Exchange rate fluctuations risk reducing the profits or increasing the solvency capital requirements when exchanged to the currency of the key performance indicators.
describe the Investment risk for a health insurer that would be associated with selling a medical expense product in a neighbouring country.
- The company will either have to invest in a market with which it is less familiar to match the liabilities or accept a mismatching risk.
- Therefore the liquidity risk and currency mismatching risk may be higher.
- The investments may not perform as expected
