Pricing - Unit Linked Policies

Discussion in 'SP2' started by Alan2007, Mar 22, 2008.

  1. Alan2007

    Alan2007 Member

    I understand that in pricing unit-linked contracts, the charges structure are determined.

    Would the charges include allocation rate, bid offer spread, policy fees deducted from the premium and the unit fund, any mortality charges, expense charges, death charges, annual management charges?

    In pricing would asumptions be made regarding the unit and non-unit fund?

    Am I correct that no assumption would be made on the b/o spread as this is one of the charge that the company needs to work out?

    In profit-testing allowance must be made for supervisory reserves. How would supervisory reserves be calculated as we don't know the charges?

    Thanks :D
     
    Alan2007, Mar 22, 2008
    #1
  2. Lynn Birchall

    Lynn Birchall ActEd Tutor Staff Member

    In pricing a UL contract, it would be usual to set some of the charges before doing the pricing (eg the policy fee or the bid-offer spread, which might be set to be the same as those on the company's other products).

    Pricing would normally use a profit criterion to solve for the amount of 1 of the charges.

    You'd need to make assumptions about both the unit and the non-unit funds to project forward all the cashflows (similar to if you were reserving).
     
    Lynn Birchall, Mar 24, 2008
    #2
  3. Alan2007

    Alan2007 Member

    Thanks. Could someone answer the above please?

    In unit-linked policies if we are asked to work out b/o spread then am I correct that no assumption would be made for this when it comes to using the profit testing model.

    Many Thanks :D
     
    Last edited by a moderator: Mar 24, 2008
    Alan2007, Mar 24, 2008
    #3

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