hi In 2009 CA1, CH33, P3, section 1.2 In pricing, how can we deal with the below factors? For example, capital gain tax may be a percentage of premium Anyone can explain some (or even 1,2) of the below factors, I will be very appreciated at your help. there are some factors, which are any tax, cost of capital, margins for contingencies, cost of options and guarantees, reserve basis, experience rating, investment income and tax, reinsurance cost.
Hi uktous I agree it's difficult to imagine allowing for all these things if we imagine using a simple formula approach (along the lines of value of premiums = value of benefits + value of expenses + contribution to profit). However, hopefully it's easier to imagine allowing for them if we use a profit testing or discounted cashflow approach (like that in CT5). Then, we just need to add items to the cashflows for whatever we want to include. So, for example, we can allow for the reserve basis by having a cashflow item "change in reserves". We could have tax as a negative cashflow. If wouldn't matter if some of the cashflows were expressions that depended on the premium. This should still be solvable by computer. Hope this helps and that the studying is going well Cheers Lynn
