Hi, I'm finding it difficult to nail down a good response strategy as the ActEd solutions to questions don't always take a consistent approach. E.g. Revision book 4, question 11 (April 2010 Question 4) asks about impact on solvency position of some scenarios, including a worsening in the lapse rate on UL policies. For a 10-mark question and three scenarios, you would thus expect 2 to 3 marks per scenario plus some intro and general comments. For the UL policies mentioned above, the revision book solution mentions: - Possible improvement of solvency position from lapse profit if reserves + SCR exceed surrender value - Possible worsening of solvency position due to increasing per policy overheads and reserves going up The first point is made across two bullets but this is essentially one point in total. It does not mention, just as a few examples: - Markets have imploded so investment products may have biting guarantees, actually causing losses on surrender - Loss of income from funds management charges meaning a need to increase non-unit reserves in general for remaining products - Loss of future income from allocation rates and bi/offer spread on unit purchases that would have been made by those policyholders that lapsed, having the same effect - The shift in total business mix of the company towards protection products (which are more capital intensive) if many savings products lapse In the exam, time does not allow for writing everything about everything so could you advise please some strategies for triaging the points that need to be hit?
Hi Benjamin I agree that it's always tricky to know which points will score. Often valid, but secondary, points will not score. A lot depends on the number of marks available. So a minor point might score in a 10 mark question, but not in an otherwise identical question for 5 marks. My advice would be to organise the points that you are going to make so the you start with the most important ideas. One way to decide the importance of an idea is to see how closely it fits with the wording of the question. So in this question, ideas that relate to the investment split are likely to score because the question explicitly mentions this. Points such as the possibility of surrender guarantees are less likely to score because the question makes no mention of them. It's also worth trying to give as broad a range of points as you can. You need to give enough detail to get the mark, but then anything extra won't score. I think the points you've made are all valid and could score in future questions. You mention market imploding leading to guarantees biting. The solution does cover this, although under the fall in prices heading: "Cost of guarantees will rise (as unit funds are smaller)". So I think this point would score. Your two points on loss of income are basically the same as our point on increasing per policy overheads. So again you'd score for these points. However, you'd only score once as the points are essentially the same. I'm not sure that your last point on changing business mix would score though. I agree that the mix will change, but the company is selling the protection policies already and so already incurs their cost of capital. Good luck with the exam Mark
