T_Product Design and Pricing 2

Question 1

Assumptions Consistency

Answer 1

Assumptions should be set in totality. Related assumptions should be set consistently and correlations between certain assumptions should be allowed for. E.g. between:

• Investment returns and inflation/expenses/RDR.
• Expenses and withdrawals.
• Margins and all other assumptions.

Question 2

Factors in product design

Marketability

Answer 2

Innovation, charging structure, premium rate guarantees.

Question 3

Factors in product design

Competitiveness

Answer 3

Should not depart too much from competitors, but may try to innovate.

Question 4

Factors in product design

Financing Requirement

Answer 4

Depends on benefit and charges design, influenced by availability of capital resources.

Question 5

Factors in product design

Risk Characteristics-

Answer 5

Depends on company’s appetite to accept or reinsure risk.

Question 6

Factors in product design

Onerousness of Options and Guarantees-

Answer 6

E.g. level of surrender values under non-linked contracts.

Question 7

Factors in product design

Sensitivity of Profit

Answer 7

E.g. may be less sensitive if charges can vary as experience changes.

Question 8

Factors in product design

Extent of Cross-Subsidies

Answer 8

E.g. between large and small contracts, trade-off with simplicity of design.

Question 9

Factors in product design

Administration Systems

Answer 9

May constrain benefit and charging structure.

Question 10

Factors in product design

Consistency with Other Products

Answer 10

Easier to implement if similar to existing products, reduces risk of policyholders lapsing on old products.