T_Glossary 10 Flashcards
negative non-unit reserves
if projected non-unit income exceeds non-unit outgo on a unit linked contract, it may be possible for a life insurance company to set up a negative non-unit reserve in respect of that contract. this may be subject to certain constraints, depending on the regulatory regime.
negative reserve
The valuation of a life insurance contract (using gpv reserves or equivalent) will give a negative reserve if the value of the future valuation premiums exceeds the value of the benefits plus future expense. This means that the contract is being treated as an asset.
net premium valuation
this is a method for placing a value on a life insurance company’s liabilities that involves calculating a present value of the contractual liabilities and deducting the value of the future net premiums, all owing in each case only for mortality and interest.
the net premium is the premium, calculated on the basis of the valuation assumptions and payable under the same conditions as the office premium, that will provide the contractual benefits offered at the commencement of the policy.
new business strain
New business train arises when the premium paid at the start of the contract is not enough to cover the initial expenses, commission payments and any reserves or additional capital requirements that the company needs to set up at that point.
overheads
this term is used to refer to that part of a life insurance company’s total expense which are independent of the volumes of business it is currently writing or has already written. in practice, companies will have different views as to which of their expenses will be overheads.
A company will usually allow for its overheads in pricing by allocating them on a per policy basis using an estimate of the number of contracts it expects to write.
persistency
in a life insurance company, persistency is used to refer to the rate of retention of policies that is experienced by the company. If a company has poor persistency this indicates a high level of lapses, surrenders, partial withdrawals and/or conversions to paid-up status. Persistency rates are typically measured over a defined period, e.g. 1 year, although may be expressed as a cumulative figure over the period since policy inception.
profit test
A profit test is a technique that involves discounting the future cash flows arising under a contract for assessing the expected profitability of that contract. This profitability is often measured as a percentage of the first years premiums or commission under the contract. Profit testing can be used to determine the premium and/or the level of charges under a contract.
