K
Kiran
Member
Hi Looking at the examiner report for the above question, im abit confused by the following (in red):
At very early durations, earned asset share may be negative e.g. due to the initial expenses being larger than the premium. In such cases, a loss will be made on surrender since the minimum surrender value that can be paid is zero. After this early duration, the first part of the above expression should lead to a profit being made assuming that there is a profit margin loaded into the pricing basis. However, the company is forgoing any profit that might be expected to emerge in the future.
In addition, if the actual expense cost of surrender is lower than the expense loaded into the surrender value then a profit would be made here. Profit could be defined as surrender value minus statutory reserves, and hence profit emergence would depend on that relationship.
Thanks
At very early durations, earned asset share may be negative e.g. due to the initial expenses being larger than the premium. In such cases, a loss will be made on surrender since the minimum surrender value that can be paid is zero. After this early duration, the first part of the above expression should lead to a profit being made assuming that there is a profit margin loaded into the pricing basis. However, the company is forgoing any profit that might be expected to emerge in the future.
In addition, if the actual expense cost of surrender is lower than the expense loaded into the surrender value then a profit would be made here. Profit could be defined as surrender value minus statutory reserves, and hence profit emergence would depend on that relationship.
Thanks