Chapter 23: Contract design

Question 1

Contract design factors

Answer 1

AMPLE DIRECT FACTORS
Administrative systems
Marketability (& market for the product)
Profitability
Level and form of benefits
Early leaver benefits
Discretionary benefits
Interests and needs of customers, providers and other stakeholders
Risk appetite of parties involved
Expenses vs charges
Competitiveness
Terms and conditions of contract
Financing and capital requirements
Accounting implications
Consistency with other contracts
Timing of contributions and premiums
Options and guarantees
Regulations
Subsidies (Cross)
Risk appetite and risks involved with contract

Question 2

Parties involved in a contract design process

Answer 2

PALAFASP
The providers
The providers customers
Actuaries
Lawyers
Accountants
Financial backers
Administrators
Sales and marketing

Question 3

Provider’s needs will be influenced by

Answer 3

The chosen market
The capital available
The liquidity available
The expertise available

Question 4

Provider’s customer’s needs will be influenced by

Answer 4

Capacity to pay
The risks to be covered
Attitude to financial risk
The benefits that are needed at different times in the future

Question 5

Pricing basis

Answer 5

Set of assumptions and methods an Actuary uses to calculate Premiums
Includes assumptions about:
Mortality/Morbidity
Expenses
Investment return
Lapses/Withdrawals
Commission
Profit margin
Inflation
Tax
Reinsurance
How many times a claim can occur

Question 6

6 TCF

Answer 6

Culture and governance
Product design
Clear communication
Suitable advise
Performance and standards
Claims, complaints and changes

Question 7

Profitability in insurance contracts is affected by

Answer 7

• Claims experience
  o Claims frequency
  o Claim amount
  o Claim inflation
  o Options and guarantees
• Expenses and expense inflation
• Investment returns
• Withdrawal experience
• New business volumes and mix