1 / 20

Life Insurance Source of Earnings

Life Insurance Source of Earnings. Participating policies (mutual companies) Universal life type policies (SFAS 97) Amortization of DPAC ≈ gross profits Mortality, persistency, interest, expenses. Post Mortem Analysis. causes of superior / inferior performance.

channing-melendez
Download Presentation

Life Insurance Source of Earnings

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Life Insurance Source of Earnings • Participating policies (mutual companies) • Universal life type policies (SFAS 97) • Amortization of DPAC ≈ gross profits • Mortality, persistency, interest, expenses

  2. Post Mortem Analysis • causes of superior / inferior performance

  3. Estimation Error − Process Error • Estimation error: difference between forecast and true expected value • Process error: difference between true expected value and realization

  4. Workers’ Compensation • Static vs dynamic DPAC amortization • Charged, expected, and actual results • Solicitation costs on not-taken policies

  5. Analysis Levels • Individual factor • Policy year • Policy cohort

  6. Contribution Principle • Policyholder dividends ≈ contribution to profits • Three factor models

  7. Persistency • Increased withdrawals → • Increased current earnings • Lower future earnings

  8. Loss Cost Trend • Fast track data to countrywide trends • Countrywide trends to state trends • State trends to predict loss cost changes

  9. Estimation Error and Process Error

  10. Loss Trend Analysis (2)

  11. Loss Trend Analysis (1)

  12. Credibility • Estimating past experience • Removing sampling error

  13. Interest Spread

  14. Retention Rates • Historical 90% retention • New policy year: 80% retention • Acquisition costs: 20% new; 5% renewal • ELR: 80% new; 70% renewal • Total new-renewal spread: 25%

  15. Solicitation Costs

  16. Retrospectively Rated Policies • High non-ratable losses • Low investment income • Excessive expenses • High lapse rates or not-taken rates

  17. Item Values • Value in pricing analysis • Expected cost at policy inception • Actual (realized) cost

  18. Ratable Losses

  19. Retro Source of Earnings

  20. Pricing Paradigms • Premium / loss paradigm • Credit / charge paradigm

More Related