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April 2006 Question 1 and 7

D

dChetty

Member
Question 1

Please explain how will the modelling use appropriate model points that represent the existing business for unit-linked contracts.

Question 7

The solution says "Even if the assumptions chosen are appropriate, the company is still at risk from random fluctuations". Please explain.

The solution says" The company might decide to introduce differential annuity rates to allow for the expected mortality of lives e.g. in different states of health, different regions etc. They could manage this risk using underwriting". How would underwriting be done?

"The company could consider using mortality derivatives to reduce the risk of future mortality improvements". Please provide examples of mortality derivatives.
 
dChetty said:
Question 1

Please explain how will the modelling use appropriate model points that represent the existing business for unit-linked contracts.

Question 7

The solution says "Even if the assumptions chosen are appropriate, the company is still at risk from random fluctuations". Please explain.

The solution says" The company might decide to introduce differential annuity rates to allow for the expected mortality of lives e.g. in different states of health, different regions etc. They could manage this risk using underwriting". How would underwriting be done?

"The company could consider using mortality derivatives to reduce the risk of future mortality improvements". Please provide examples of mortality derivatives.
Click to expand...
These are all good questions that the examiners could ask in the exam. So you need to be able to answer these. For example, how underwriting works is fundamental to life insurance.

So give it a go and let me know your answers to these questions and I'll let you know whether you've got it right. If you have to, re-read the course notes, but hopefully by the time of the exam you should know the answers to these straight away.
 
Please confirm my thought process.

1)I would think appropriate model points will be average age of policyholder, average premium, average term of policy.

2)Even if an appropriate model and assumptions are used, a random event could occur like a Tsunami and result in more than expected claims paid out. It could be death claims or other claims.

3)For underwriting annuity business, if the insurer is found to be healthy after a medical examination, a lower annuity rate will be offered since the annuity is likely to be paid for longer. If the potential annuitant is unhealthy a higher annuity rate may be offered since the annuity is likely to be paid for a shorter time.

4)I am not sure of mortality derivatives. Please explain.
 
yeah - looks like you're getting the hang of it.
For 3. that's possible though expect most u/w would simply be answers to a questionnaire.
For 4, a quick internet search will reveal lots of info.
 
Thank you. I am aware of longevity swaps for annuity business. Are there mortality derivatives for whole of life and term assurance business? Please advise.
 
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