Just going through the examiners report for paper 2 for last September. I sat this paper and struggled particularly with this question and can see from the examiners report other people struggled (with the people scoring on average less than 25%). I'm wondering how this question should be approached when there's not much on accounting data or revenue accounts in the course notes? (Mind, it's been years since I did CT2..)
The question is as follows:
Background:
A large proprietary life insurance company writes a range of products in its home market. It has implemented the principles of treating customers fairly throughout all aspects of its business.
The company has been making losses on its portfolio of annuities in payment for the last 5 years. The Board of the company feel that a significant factor in these losses is due to poor policy data for its annuity business. The pricing actuary of the company has also expressed concerns that the rate of future improvements in longevity will be higher than was assumed in the original pricing of the existing annuity business.
The Board of the company are also under pressure from the company’s shareholders to start selling new business in developing markets overseas. The Board are therefore considering a potential opportunity in a large overseas Country X. To date, the only life insurance policies that have been allowed to be sold in Country X have been through the state nationalised insurer. The state nationalised insurer offers only a very limited range of products, and significant parts of the population have not purchased any life insurance products. Proprietary life insurance companies have just started to be allowed to compete with the state nationalised insurer. The Company is considering whether to start selling life insurance business in Country X.
The insurance regulator in Country X is considering how it might assess whether customers have been treated fairly, by surveying customers when they receive the payouts on their products, and then asking how happy the customers are with their payout.
(ii) Discuss how the company’s accounting data could be used to assess the policy valuation data of the annuity business. [13]
I would have never have gotten the three headings used in the answer, which were:
I – compare annuity pa with regular/annuity payments/claims in revenue account
II – compare new annuity reserves with new single premiums in revenue account
III - compare terminating annuity reserves with lump sum claims in revenue account
Any tips?
