Hi
I have a question regarding how to answer some of the longer questions. I won't copy in what the examiner report gives as the solution, but ive copied a sample of what i answered for the question. Just interested if im still valid points/ if i would receive credit, or if im way off the mark.
Edit: Is this the differnece because it sounds like ive geared my answers more towards a pricing approach rather than a supervisory valuation?
· Investment Return/unit growth
· This will depend on assets that policyholders have invested in, more volatile funds will yield higher returns and unit growth
· Economic environment and government policies will also effect how large the returns are depending on how the market reacts. Large returns can be expected in a boom, whereas negative or small returns in a recession
· Lower growth rate is more prudent
· Risk discount rate
· This will depend on the regulatory basis company may use for supervisory valuation
· Can depend on country
· Generally risk free rates using swaps or gilts so will depend on market movements and can be effected by the governments credit rating
· Expenses/Commission
· Initial expenses – will depend on how product is sold, i.e. intermediary brokers which are more expensive (resulting in higher expense and need to pay commission), as well as underwriting undertaken. More underwriting carried out the more expensive it is resulting in higher charges. These could be covered by the allocation rate to reduce new business strain.
· On-going expenses – will depend on the overheads of the business such as salary, rent, computer systems and admin work resulting from the policies. Will be the basis to derive per policy expenses which could be covered by the flat fee. Would also need expected future values of CPI to account for expense inflation, and ensure the fee can cover future expenses, by having it high or reviewable
· Investment expenses and fund based commission will be based on what types of assets and funds policyholders invest in. More volatile funds with higher returns will tend to have higher expenses and commission, this will form the basis on what the company charge in terms of AMC %
· Also termination expenses, regarding surrenders and deaths, however this could be added onto the fixed rate fee
· Switch fee is likely to depend on unit fund size and economic environment, if returns are low, potentially more switches as policyholders seek higher returns
Regards
Kiran
Last edited: Jan 22, 2022
