Chapter 9 and 10

Question 1

Outline how an insurer would determine assumptions for with-products

Answer 1

Fund growth:
* E(return) depends on asset mix held
* Make allowance for E(investment expenses)
* May be compared with GB of suitable term
* Stoc model required if there are guarantees or MVR=0

Expenses:
* recent expense investigation
* allow for E(business volume and mix)

Expense inflation:
* CPI and salary
* must be consistent with fund growth and rdar

Risk discount rate:
* Based on risk-free rate + allowance for return required for additional risk taken on
* can include margins for uncertainty

Withdrawal rates:
*Based on past+ adjustment for future
* consider economic conditions and unemployment rates

Tax of that business
Profit margin required

Question 2

Outline the considerations for determining the timing of surplus distribution (3)

Answer 2

• Delaying profit distribution can reduce P(insolvency)
• Bc those retained profits can be used as a buffer against adverse experience since we will have more free assets
• Delaying distribution gives the insurer more investment freedom to invest in riskier assets => more terminal bonuses can be declared

Question 3

Factors to consider when determining bonus distribution

Answer 3

• PRE
• investment fluctuations
• policy terms and conditions
• solvency
• ASt
• fairness across all generations of policyholders