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September 2013 - Q1 pt(iii)

Discussion in 'SA3' started by amo12345, Mar 20, 2015.

  1. amo12345

    amo12345 Member

    Hi,

    I seem to be getting confused with Q1 Pt (iii) of the September 2013 paper.

    In particular, under the Expenses and Commission section, I don't understand the examiners report which states:

    Return of premium is based on amounts paid by customer so will include
    return of any commissions paid . . . i.e. the insurer will need to return money that it never received in the first place

    Why would the product return the commission paid? I thought the product returned the balance of Premiums - Claims over the 10 year product so I had assumed that commission and expenses would have made the claim bigger (and had no impact on the premium itself). Alternatively, the premium would have been priced to already allow for the commission so wouldn't that mean the insurer WOULD have received this money when they first issued the policy?

    Any help would be appreciated
     
    amo12345, Mar 20, 2015
    #1
  2. Katherine Young

    Katherine Young ActEd Tutor Staff Member

    The policyholder pays the premium to the broker. The broker passes most (but not all) of this premium to the insurer, and keeps the commission for itself.

    At the end of the ten-year period, the policyholder wants his/her money back. The policyholder doesn't care that the broker kept some of the premium for itself, he/she will simply ask the insurer to pay back the full premium.
     
    Katherine Young, Mar 23, 2015
    #2
  3. marilize

    marilize Member

    Hi there

    In the SA3 examiner's report for September 2013 Question 1 (iii), under the "Claims" section, I am not sure what is meant with the following statement:
    "... the PR design means that reinsurance premium can't be funded from an underwriting margin".

    Could you please assist in explaining?

    Thanks in advance for the help.
     
    marilize, Sep 7, 2019
    #3

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