CMP Chapter 18, 22 and 26

[shinmo]

Chapter 18
Ideally, separate cashflows have different risk discount rates to reflect their inherent riskiness.
Does this mean:
- If mortality assumption is highly volatile, then risk discount rate for death benefit should be lower, so that PV(death benefit) can be higher and more reserves can be set aside?
- If investment income is highly uncertain then we use higher risk discount rate to discount these investment cashflows more?

Chapter 26
Is value-in-force same as negative reserves or PVFP component of embedded value?
How do these three differ?

Chapter 22
1) When we calculate SV on the pricing basis, are the notes referring to original or current premium basis?

2) Solution 22.11 SV for unit-linked business:
If there is reduced level allocation rates rates, why would a fixed monetary deduction be appropriate as surrender penalty?

Thanks for the help in advance!

 

[Muppet]

1, sounds right

2. yes I think PVFP and VIF are basically the same thing (if calculated on same basis with same method). For an individual contract with a negative reserve, then yes it's VIF might be this negative reserve, as profits released now - although it's possible that even more profits might emerge in future on a realistic basis if the negative reserve is still prudent. So I wouldn't try to group this in the same category at all.

3. usually the original, so bothe pricing and policy value calculated on same basis. If current basis (which is also possible) things get more complicated.

4. If you had say 90% allocation rates then, if someone surrendered early, you'd be missing on on 10% or each future premium, which is a monetary amount. So you impose a penalty to get it back instead.