September 2010

Discussion in 'SA2' started by 1495_sc, Mar 19, 2022.

  1. 1495_sc

    1495_sc Ton up Member

    Hello- Can someone please clarify my doubts below?

    Q2 part ii) How is the existing profit model adapted? Why are we not considering assumptions like withdrawal and expenses in the model? As the maximum cover is decided at the time of offering the policy to policyholder, why are we still not considering this as model for point of sale?

    While the solution talks about ways in which the profit model can be adapted, how is the maximum cover level ultimately calculated? For example, we know the formula used in profit model after we make assumptions. Similarly, what about the maximum cover level when we have appropriate policy data and assumptions?

    Thank you in advance!
     
  2. Em Francis

    Em Francis ActEd Tutor Staff Member

    Hi
    The original profit test would include expenses, etc. The maximum cover model looks at projecting the unit fund and the expected mortality to work out the cost of cover, ie the cost of guarantees (there is a cost when the sum assured is above the unit fund) the company would look to select cover so that there is minimal cost. When the original profit test/pricing model was run then the company would have assumed a cost of the guarantee and this will be the target for the future review models.

    Hope this helps.
    Thanks
    Em
     
    1495_sc likes this.

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