1
Q
Outline how models are used for product pricing
A
- Choose model points to represent expected new business, eg base on profile of existing business for this or simliar product, modified for expected future changes
- For each model point, projected cashflows, allowing for reserving and solvency capital requirements, on basis of set of assumptions
- Discount cashflows at risk discount rate that allows for
- Return required by the company
- Level of statistical risk attaching to cashflows (so in theory separate RDR for each component of cashflows)
- Premiums or charges for model point can then be set to produce profit required by company.
2
Q
A
3
Q
7 uses of capital for a life company
A
- Enables withstanding of adverse, often unexpected, conditions
- Enable writing of new business (covers product development costs and new business strain)
- Enables adoption of less restrictive investment policy
- Smoothing surplys distributions to policyholders
- Smoothing dividend payments to shareholders
- Reducing need for reinsurance
- Allows seizing of profitable business opportunities
4
Q
State 2 types of variation that should be considered when performing sensitiviy testing of the ouput from a model
A
Model outcome should be abalysed for variations in
- Model points
- Parameters
5
Q
A
