CT5, Actuarial Knowledge
CT5, Actuarial Knowledge
CT5, Actuarial Knowledge
1. Force of mortality
The force of mortality is the instantaneous rate of mortality at age x.
8. Types of bonus
· Mortality experience
· Investment returns
· Future expenses
· Bonus rates
· Interest rates ( constant, deterministic, stochastic )
We must consider-
Time value of money
The uncertainty attached to payments to be made in the future ,
depending on the death or survival of a given life.
When due to some reasons, the policyholder stops paying the premium
due to the policy, the company lapses/terminates the policy and no
premium or claim payments are made in these scenarios.
COMPANY
PREMISES
PREMIUM
UNALLOCATED NON UNIT FUND
PREMIUM
COST OF
ALLOCATION UNIT FUND NON UNIT
MANAGEMENT BENEFIT TO
CHARGES POLICYHOLDER
UNIT FUND
UNIT BENEFIT TO POLICYHOLDER
24. Non unit fund
The non unit fund is the insurance company’s money, held in an account
that the policyholder does not see.
The money in the non unit fund is not invested in units and reflects the
insurance company’s cashflows from having sold the contract. These
cash flow include any premiums not allocated to units, charges levied on
the unit fund, less the insurance company’s expenses and any benefits
paid to the policyholder.
39. Expenses
In order to price contracts profitably, life insurance companies need to determine the
expenses that will be incurred by the contracts and adjust the premiums accordingly.
To determine the expenses per policy, we conduct an expense investigation. In this
investigation, expenses are broken down into overheads and direct expenses. We then
apportion overheads to policies on a per-policy basis, and apportion direct expenses to
policies according to the relevant drivers (per policy, per £ premium, or per £ sum
assured).
These per-policy expenses then need to be broken down into initial expenses, renewal
expenses and termination expenses. We can then allow for them when calculating the
premium.
Care needs to be taken to allow for inflation of renewal expenses.
45. NetPresentValue
This is the present value of the profit signature determined using the risk
discount rate.
46. ProfitMargin
This is the NPV expressed as a percentage of the EPV of the premium income
47. ProfitCriterion
The objective specified for expected level of profit is termed the “profit
criterion”.
Careful choice of a profit criterion is central to the actuarial management of the
company selling the products. It is common for those marketing and selling the
products to receive part of their salary in the form of a “productivity” bonus eg
commission which is a percentage of the total premiums for the policies sold. If
the profit criterion chosen is directly related to this “productivity” bonus, then
the company’s profits will be maximised if the salesforce maximises its income.
Such considerations are important in choosing the profit criterion to be used
48. UnitLinkedContracts
With unit-linked contracts the policyholder’s basic entitlement is expressed in terms of
units, which represent a portion of a fund or funds run by the life insurer. The value of
these units moves in line with the performance of the fund. Given this basic concept,
the unit-linked idea can be used to provide many different types of product, for
instance:
● a regular premium product offering a guaranteed sum assured on death, to give
an endowment assurance;
● a single premium product offering a return of premium on death to give a pure
savings bond;
● a regular premium contract offering an annuity payment during periods of
disability or unemployment; or,
● a single premium product offering an annuity payment until death.
49. Whatwillhappenifthereservingbasisistoooptimistic
A company whose reserving basis is too optimistic runs a significant risk of
paying out too much profit to its capital providers. The result could be
insufficient assets in future to meet liabilities, and the company would become
insolvent.
51. Selection
Selection is the process by which lives are divided into separate groups so that
the mortality (or morbidity) within each group is homogeneous. That is, the
experience of all lives within a particular group can be satisfactorily modelled by the
same stochastic model of mortality (or morbidity).
52. DifferentPensioners
(i) activemembe rsofthes cheme,ie thosen otinreceiptofanybenefit s
and
forwhomcontribu tionsareb eingpaid,
(ii) deferredpe nsioners,ie thoseforwhomnocontributionsarecurrent ly
beingpaidandwh oareentit ledtoapen sionatsomefutured ate,and
(iii) pensionerswhoretire datthenor malretirementageandarenow
receivingapensi on,
(iv) pensionerswhoretiredunderthei ll-h
ealthretirementrulesofth e
scheme
andarenowrecei vingapens ionbenefit,
(v) pensionersw horetiredundertheea rly(beforenormalpensionage)
retirementrulesofthesche meandaren owreceivingapensionbenefit.