UL and CBs in S2

[i-actuary]

Hi all,
i am reading some exercises with regards to UL and how BEL is constructed. most of them have fixed charges. so no CBs apply.
in the even of having reviewable charges (lets say every 1 year) ;
1. CBs apply ? if yes the time horizon will be 1 year for BEL? both for unit and non unit reserves?
2. on the other hand the account vale (asset side) will account for entire the accumulation (investment returs etc) of all premiums paid?
3. if yes this would make a huge impact on the own funds compared to another company that has fixed charges and in theory these two companies have the same charges and samw investment earnings?

 

[Em Francis]

Hi all,
i am reading some exercises with regards to UL and how BEL is constructed. most of them have fixed charges. so no CBs apply.
in the even of having reviewable charges (lets say every 1 year) ;
1. CBs apply ? if yes the time horizon will be 1 year for BEL? both for unit and non unit reserves?
2. on the other hand the account vale (asset side) will account for entire the accumulation (investment returs etc) of all premiums paid?
3. if yes this would make a huge impact on the own funds compared to another company that has fixed charges and in theory these two companies have the same charges and samw investment earnings?

Hi
For (1), yes there is likely to be a contract boundary of one year here, however the unit part of the BEL will include only premiums paid to date.
For (2), the assets in the balance sheet will also include only premiums paid to date.
So for (3), there shouldn't be much of a difference in own funds.

Thanks
Em

 

[i-actuary]

Hi
For (1), yes there is likely to be a contract boundary of one year here, however the unit part of the BEL will include only premiums paid to date.
For (2), the assets in the balance sheet will also include only premiums paid to date.
So for (3), there shouldn't be much of a difference in own funds.

Thanks
Em

Hi Em,
for 3 if OF =Account value -bel (roughly speaking) . bel with CBs will be much less than BEL without CBs . isnt it the case ?
thank you

 

[Em Francis]

Hi Em,
for 3 if OF =Account value -bel (roughly speaking) . bel with CBs will be much less than BEL without CBs . isnt it the case ?
thank you

Hi
No: the BEL for a policy with contract boundaries is likely to be higher than the BEL for an equivalent policy without contract boundaries. If the policyholder has paid the same premiums to date, incurred the same charges and earned the same investment return, the unit reserve part of the BEL will be the same for both. The non-unit part of the BEL is effectively the excess of {future expenses & benefits above the unit fund} over future charges – and this would normally be expected to be negative (since the charges would include profit loadings). For the policy with no contract boundaries, the non-unit part will most likely be a greater negative amount than for one which does have such boundaries – because the latter cannot take credit for as much in future charges. However, the unit components of the BEL (which are not impacted by contract boundaries) are normally dominant and so my point was that the impact isn’t necessarily ‘huge’ as had been suggested in the initial post.
Hope this helps.
Thanks
Em