Hi Team, I would like to understand a bit more on how the pointers are to be written about the factors that need to be considered when calculating a purchase price of any product when one company is looking to buy out another company's product line. I have a few references that I would like to clarify: 1. April 2023, Q3, part 4th - This question is asking us to calculate the purchase price for a PMI portfolio. I understand that PMI is a short-term business and so VIF is not being considered. Instead, it is saying that we do like a normal profit test based on the expected renewals of the business to come to the purchase price (considering all the assumptions in the process). Is there anything else to watch out while calculating the purchase price for short term business? 2. Sept 2022, Q2, part 3rd - This question talks about the purchase price for an IP portfolio. I understand that this is a long-term business and so we are calculating the VIF as a starting point. It talks about the data considerations and them methodology. We only talk about methodology in the question related to PMI. Can similar type of data considerations be talked about in the question for PMI too? We will still need the data from a PMI portfolio, eg - current premiums as a starting point? 3. Could a similar approach (the one taken for IP) be taken for an LTCI and CI portfolio? 2. Could you please suggest the approach that will be followed for Group business - IP, LTCI and PMI? looking forward to hearing from someone. Kind Regards, M
Hi Mansi There are two different approaches here to valuing the business for purchase: one for short-term business and one for long-term business. Short-term business includes individual PMI, but also all forms of group business. We would use a projected cashflow approach including expected future renewals as in April 2023. Long-term business includes individual IP, CI and LTCI. We would look at the value of the in force business here as in September 2022. Really both approaches are the same. In both cases we are doing something like a profit test. We project future cashflows (allowing for reserves) and discount back future profits. The key difference is that for short-term business we look at renewals, whereas for long-term business we only look at in-force business. Both questions discuss data issues, although it is a bit more obvious with September 2022 as it has its own separate section. Note that with short-term business, the purchasing insurer has the opportunity to reprice the business on its own assumptions on renewal, which explains the differences in the importance of the buyers and sellers data. Best wishes Mark
