Ch 0: Intro

Question 1

New business strain summary

Answer 1

• Generally occurs with regular premium contracts but possible for single premium as well.
• Large proportion of costs associated with contract may occur at start (acquisition, marketing, underwriting, commission)
• Net cashflow as start is negative, -> negative asset share
• Prudent liabilities + additional required solvency capital increases the initial capital strain.

Question 2

Mutuality vs Solidarity (Differences + challenges)

Answer 2

Mutuality:
- Traditional insurance concept - Pooled fund is created and premiums are paid into the fund by policyholders.
- Premium paid by PH is determined based on the risk presented by the policyholder.
- Some individuals may be excluded from cover (risk to great or not affordable by PH)
- Benefits covered are limited by the terms of the contract.

Solidarity:
- Premiums not based on risk but rather on ability to pay or set equally.
- Losses are paid according to need
- Likely to result in adverse selection.

Question 3

Underwriting approaches (5)

Answer 3

• Full medical underwriting:
  - Proposer is medically underwritten at application and medical history is gathered. Applicant usually accepted at standard terms but policy has exclusions for pre-existing conditions.
• Moratorium underwriting:
  - Instead of medical underwriting, insurer states that it will not cover any medical conditions that existed during a pre-specified period prior to the policy commencing. After say 2 years, these conditions may be covered if no treatment, symptoms or advice takes place.
• Medical history disregarded (MHD)
  - Individual’s proposal underwritten without regard to past medical history (likley to apply to group schemes)
• No worse terms (NWT)
  
  • Insurer agrees to offer cover at least as comprehensive as the PH’s current policy, with no additional underwriting conditions.
• Continued personal medical exclusion (CPME)
  - This is a NWT acceptance wherby the insurer promises to only carry forward such cover for medical conditions as existed under the previous insurance policy.