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CP1 (paper 2) 2021 April Question 1&2

J

Joi

Keen member
Hi, I got some questions

1v) In the answer: It could use its own database to target the existing customers. The whole of life assurance product information could be used effectively. It should have more information from its annuitant policyholders that would be beneficial on postcodes etc.
[I'm not sure why whole life assurance has more information compared to annuity products? Is it because annuities are cheap, so the company will not collect too much detailed information from p/h? In my opinion, p/h information is very important for pricing.]

2(i) In the answer: The government could make it compulsory to travel by train, but performance may get worse meaning that delays could get worse and then overall refunds increase
[How can this happen? I'm confused about what "compulsory to travel by train" means here. Does this mean everyone must travel by train? Then what's the point of introducing a new traffic charge? And how can the government control the willingness of citizens to use what transport they want?]

2(vi) Advantage of using discounted cashflow method: There will be no market value so may be no other option
[Does this mean the market currently don't have such business so there's "no market value"?]
 
Hi Joi,

1v) I can't seem to find this in the ActEd solutions, however this is in the IFoA solutions. For reference, the ActEd solutions state that existing policyholder data could be used, however doesn't reference whole of life assurance product information.

2i) This is all around legislative changes to make it more attractive (or even compulsory) to travel by train. Note that this part of the question is all about looking at it from the perspective of the insurance company. More people on the trains would increase exposure (for example, 10 people on a delayed versus 100 people on a delayed train? the latter would mean much more compensation being paid out). Also, the government could very well make it compulsory (though this may be very unpopular). There are already lots of things that we need to do, in the UK which are compulsory; for example, we are required to have third party insurance on our motor vehicles, and are also required to pay 'road tax'.

2vi) This part of the question is all around valuing investments. The point here is that there is no other way of finding a market value of the future traffic charge right (there aren't any 'matching' assets we can compare the traffic charges with).

I hope this helps. I do recommend that you have a look through the ASET (an ActEd product), as there is more detail in there which may help explain these points, and lots more.

Thanks, and good luck with the exam.

Aman
ActEd Tutor
 
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