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Time horizon of Financial Planning

M

Minh Ho

Very Active Member
According to CMP:
The capitalisation horizon is the number of years of new business to be modelled. The modelling horizon is the number of future years that the cashflows are projected
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Does "new business" mean only "new policies"? How does that relate to "capitalisation"?
In my understanding, capitalisation of new business over long time, say 5 years or even 1 year term in General Insurance, usually return to a positive amount, which mean we need no capital for new business. So how does that call "capitalisation"? Because at the time of modelling new business, we only sell new policies if we think that the new business is profitable.
 
Yes, new business means new policies.
You most definitely need capital for new business! To be honest, I think you'll need to revisit the basics of capital and its usage from Subject CP1 (and Subject SP7) as this is an important topic in Subject SA3 but the basics are covered in earlier subjects. You should also revisit pricing basics from Subject SP8, as it's not totally true that we only sell profitable new business (although I agree it's a good overall aim).
 
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