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Hi The PVFP looks at what will happen in the future. An example might help. Let's ignore investment returns and discounting and consider the...

Hi The formula says that the profit is the increase in the assets in excess of the increase in the liabilities. Any cashflows in or our out will...

Hi Imagine that the insurer sets its unit prices at the start of the day and performs all transactions during that day at that price. An...

Hi The contracts have been priced to have the same expected profitability. However, their actual profitability will depend on the experience....

Hi The question is just saying that we should check whether the projection allows for an increase in dividends. Yes, you're right that increased...

Hi Yes this all looks correct. Yes, the policyholder will be able to convert their policy into an annuity at retirement. Best wishes Mark

Hi Kiran Yes there will be more charges too, but the expenses are bigger than charges, so expenses has the bigger effect. Best wishes Mark

Hi Kiran You have the answer the wrong way around. The solution says to use low surrender for type A and high surrenders for type B. Contracts...

Hi Yes, this all sounds correct if we ignore the effect of discounting. If someone surrenders at time 10, then on the best estimate basis the...

Hi I'll answer Q2 here and Q1 in my next post. A deferred annuity could be regular premium or single premium. Here though the contract is single...

Yes, this all looks good.:) Best wishes Mark

Hi No, this doesn't sound quite right. You need to separate out the ideas of who chooses the investments and who carries the risk. For...

Hi Sayantani I have copied in your questions and then answered each below. In the above example, we have discussed about earning investment...

Hi Many companies have only a single with-profits fund, while they might offer a very wide range of unit-linked funds. So it is fair to say that...

Hi Ekta The exam has 100 marks. But most points are worth half a mark. So the report means that 200 half mark points will score 100%. Best...

Hi Sayantani Yes, you're right that there's no sum at risk from the unit fund as the contract pays out exactly the unit fund on death. However,...

Hi Sayantani Please don't lose confidence. The mock is a difficult paper and is meant to be as challenging as the real exam. I wouldn't expect...

Hi Siddharth I would stick to the explanation that Sayantani gave in the exam as that is what the examiners will be expecting to see. Your...

Hi Sayantani Thanks for posting. Yes, your explanation looks spot on. Best wishes Mark

Hi Yes, your equation is better. If the annuity is paid in arrears then we should have the 1-q_x term to allow for the benefit only being paid...

Hi Sayantani One approach to calculating the EV is to split the assets into two parts: the assets backing the asset share and the other assets...

Hi Sayantani You said that the difference between experience basis and the reserving basis goes to the estate. This isn't usually the case....

Hi Sayantani I agree that the wording of the examiners report makes it sound like they are double counting the distribution of surplus and the...

Hi Q2. Whenever non-linked is used in the course notes it is used to mean the opposite to unit-linked. So non-linked means not unit-linked. So...

Hi Your suggested strategy would work well for conventional with-profits and an insurer that wanted to be well matched would do exactly that. A...

Hi Sayantani Both these statements are true. The insurer has to price a with-profits contract using prudent assumptions (or alternatively with...

Hi Sayantani I think you have misread what we said here. We haven't said that the premium goes up when reducing the size of the policy. Instead...

Hi Sayantani I'll answer 1. now and come back to 2. later. I'm afraid your logic here isn't right. The policyholder can only claim the benefit...

Hi Mark Insurers may hold data in lots of different places. It may all ultimately have come from the same source, but there is the potential for...

Hi Sayantani Yes, you're thinking in the first paragraph is correct. We calculate the reserve using the valuation interest rate of 3%, but we...

Hi Thanks for these question. I've answered them in turn below. Q1. Withdrawals should be interpreted as widely as possible, so lapses,...

Hi Sayantani Yes if reserves grow at 10% but shareholders required return is 12%, then 2% is the cost of capital. So all we are saying in the...

Hi There are two different offer prices: one for the assets and one for the units. So in section 4 we are talking about buying assets. The stock...

Hi I'm afraid your explanation here isn't right. If we increase the reserving basis (prudent) assumption then we increase the reserve now, and...

Hi The solution has two main ideas. Firstly the premium doesn't matter very much for a with-profits contract because a higher premium means a...

Hi I was just trying to give a nice simple example that made the key principles of bonus earning capacity clear without worrying about...

Hi Pulit Here's my example again allocated to the appropriate parts of the quote with some extra detail. Under sum-at-risk reinsurance the...

Hi Pulit Maybe it's easiest to see this with a numerical example. Consider a without-profits endowment assurance with sum assured of 100,000 and...

Hi Christina All Revision Notes should have been despatched by now. Please can you email actedmaterials@bpp.com with your details and we can...

Hi Ekta Yes we should allow for the alteration expense of 120 in part (ii). However, the solution has done this already as it gives the value of...

Hello Thanks for the question. Let's consider an endowment assurance. For without-profits policies the benefit is fixed at the sum assured. So...

Hi Kiran The same basic principles apply regardless of the type of contract. A retrospective valuation looks at the accumulated value of the...

Hi Kamal I think you are confusing individual and group income protection policies. The Core Reading you are quoting refers to individual income...

Hi Tu Doan I'll answer each of your questions in turn. 1. I think you are over-complicating things here. This is not a situation we will meet in...

Hi Kamal Please could you give me page references for these quotes. The answers will depend on the setting and I will need to look that up. Best...

Hi Tu Doan I'm afraid your interpretation of the expenses above is wrong. As you've said, if we did it that way then unit-holders would be...

Hi Kamal Q1. Yes your example is exactly what the notes are saying here. Note that when the contract was taken out the average mortality would...

Hi Again, I've answered your questions in turn. Q1. A paid up conventional with-profits policy could continue to receive bonuses. The bonus rate...

Hi Kiran I think where you are going wrong in this question is by thinking about things retrospectively. The question is looking at the...

Hi I've answered your questions in turn. Tutorial 1 1. You appear to be suggesting that the premiums for TA are all profit as the claims and...

Hi Rajat To help other students understand the post, this query refers to the question at the bottom of page 16 in Chapter 25. We're not saying...

Hello I agree that reducing the premium is an alternative way of declaring a bonus. However, the Examiners Report didn't cover this, which is why...

Hi Distribution channels are covered in Chapter 8. There are four channels: intermediaries, tied agents, own salesforce, and direct marketing....

Hi Kamal Thanks for the questions. I'll take each in turn. 1. There may be no difference in the structure of immediate needs and impaired life...

Hi I think you have answered your own question. Once unit-linked and revalorisation policies are written then the formula for calculating...

Hi Your comments on what it means to improve underwriting all sound correct. So we just need to see how this improves sales for the insurer. I...

Hi Kiran Yes, what you've written above looks right. Chapter 30 at the bottom of page 15 says: "Direct expenses are typically variable (ie they...

Hi Kiran I would say that allocating overhead expenses is much harder than allocating direct expenses. Direct expenses are quite easy to allocate...

Hi Kiran Yes, what you've said is right. Direct costs can be the costs of selling the business (initial expenses), eg underwriting costs,...

Hi Yes, the calculations required here could introduce a circularity. This is one of the reasons why simplified approaches are often used in...

Hi A prospective reserve is the expected present value of the future cashflows (claims plus expenses less premiums). Once a contract has been...

Hi This was a very tricky question as the Core Reading doesn't give much detail about the calculation of EV for with-profits. So we need to work...

Hi Kiran The best way to get detailed feedback on your solutions is to attempt the assignments and mocks and have them marked. Your solution...

Hi Different people will have different views on what constitutes fairness. It's not something we can give a definitive answer on. However, the...

Hi Kiran The solution to this question is based around the following formula: Profit = (AS - SV') + (SV' - SV) where AS is the asset share, SV...

Hi This was a really tricky question that everyone found difficult at the time. With-profits annuities aren't covered in any detail in the SP2...

Thanks for answering this one Nicholas - that's exactly right. A numerical example might help. Assume that the annuity payments at the end of...

Hi Yes, you're right. This is a typo in the examiners report. The ASET that we had at the time said: "a fall in the value of property prices –...

Hi A model point is an example policy. We won't have the time to price every possible policyholder. So we will aim to price maybe 40 example...

Hi Kiran Don't worry too much about this question, the syllabus has changed a little since it was written, your understanding of reinsurance is...

Hi Vatsal I'll answer your questions in turn: Q1 - The terms 'claims incidence' and 'claim inception' are often used used interchangeably to...

Hi Vatsal Ideally we would change the premium rates every year. That way we make sure that we charge the correct amount. However, for practical...

Hi Kiran A surrender value would have a discontinuity by duration if it suddenly changed at some point in time. So for example a surrender value...

Hi Kiran Yes, the change in the EV is the EV at time t+1 less the EV at time t. However, this question is about the calculation of the EV at...

Hello Thanks for the clear references. I'll answer your questions in turn: 1) Accumulating with-profits (particularly in its unitised form) is...

Hi Kamal I have answered your queries in turn below: Q1: This means that the State provides some procedures for free, but individuals need to...

Hi Rajat That's exactly right. Broad equity means that the insurer will smooth the bonuses between different cohorts. So it is very common that a...

Hi Waleed Some acronyms for SP2 are available in the tutorials and the revision books. However, for an open book exam, you may find other...

Hi Trevor Where the Core Reading says: "Some companies provide cover during unemployment but change to a definition of incapacity that requires...

Hi Trevor I'll take your two steps first of all. Yes, we need to make a choice between case estimates and statistical estimates when calculated...

Hi Trevor You are right that CP1 is written to include reinsurance for general insurers. So some parts of the CP1 course do not apply to SP1, eg...

Hi Trevor The point you are making here refers to the situation where the reserving basis has changed, so the margins go up, the reserves go up,...

Hi Trevor I agree that you shouldn't need to define an abbreviation in part (ii) if you've defined it in part (i). Best wishes Mark

Hi Trevor Putting some numbers on this may help. The examiners report says: "Overall the likely outcome is that the embedded value will...

Hi Trevor You've misunderstood what the examiners report is saying. The examiners agree that lower new business means lower EV. The examiners...

Hi Trevor I'd definitely recommend defining these the first time that you use them in a question. And then defining them again if you use them in...

Let me know which book please

Hi Kamal Please can you tell me where you saw this comment. I can't see this in the examiners report. If you can give me the source including a...

Hi Trevor Yes, this looks correct. I'm sorry for misinterpreting your comments on the term assurance functions. Check out the Examination...

Hi Trevor All parts of this question are beyond the syllabus as it stands as the Core Reading does not describe two methods (in the past the...

Yes, that's exactly right. :-)

Hi Trevor If we used equities to cover the liabilities then we'd be exposed to a big risk of equities falling in value and so wouldn't be able to...

Hi Trevor We are looking at the investment strategy for a block of existing business. so some policies will already be claiming and some will be...

Hi Vatsal Q1. Yes, I agree entirely. The LHS is value of the old policy and the RHS is the value of the new. The course notes is just suggesting...

Q3. One possible answer is that non-life insurers offer personal accident cover that provides a lump sum if a policyholder is injured in an...

Hi Sagar Q1 Insurance companies may produce many different balance sheets for different purposes. The main ones would be for the annual published...

Hi Rafi Yes, I agree that Product B will get higher surrenders on the 10th, 15th and 20th anniversaries when the guarantee is in the money. But...

Hi Sagar Q!. If you buy a government bond and hold it to redemption then you know exactly what you are going to get as the coupons and redemption...

Your understanding above is all correct. So we have two types of smoothing: smoothing regular bonuses and smoothing payouts. If with-profits...