STAT3801_2011Unit5

STAT3801_2011Unit5 - THE UNIVERSITY OF HONG KONG DEPARTMENT...

Info iconThis preview shows pages 1–6. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: THE UNIVERSITY OF HONG KONG DEPARTMENT OF STATISTICS AND ACTUARIAL SCIENCE STAT3801 ADVANCED LIFE CONTINGENCIES Unit 5 2010-11 2 nd semester 5.1 Life insurance expenses • Insurer has cash flows other than claims • Treat these other cash flows as deterministic • Cost of providing benefits and other running costs • Including commission paid in respect of selling Categories of costs • Overheads • Direct expenses • Timing of expenses – Initial – Renewal – Settlement S&AS: STAT3801 ADVANCED LIFE CONTINGENCIES 2 Charging for expenses • Overhead – Per policy basis • Direct – allocated to cost drivers * Number of policies * Size of premium * Size of insurance benefit • Include in premium formula similar to benefit CF Four main categories of expenses 1. Percent of premium Start of year 2. Per $1,000 face amount Start of year 3. Per policy Start of year 4. Settlement expense When benefit claim is paid S&AS: STAT3801 ADVANCED LIFE CONTINGENCIES 3 Types of expenses Expense Components Classification Investment Analysis Costs of buying, selling and servicing Insurance Acquisition Selling expense, including commissions and advertising Risk classification, including health examinations Preparing new policies and records Maintenance Premium collection and accounting Beneficiary change and settlement option preparation Policyholder correspondence General Research Actuarial and general legal services General accounting and administration Taxes, licenses and fees Settlement Claim investigation and legal defense Costs of disbursing benefit payments Example 5.1 Categories of expenses 1 st year renewal year Percent of premium 50% 10% Per face amount $10 per $1 , 000 $1 per $1 , 000 Per policy $25 $5 Settlement expense at $10 per policy + $1 per $1,000 of face amount S&AS: STAT3801 ADVANCED LIFE CONTINGENCIES 4 Inflation and expenses • Important categories of costs – Salaries – Property – Information technology – Investment management • Inflation affects costs and needs to be allowed for • Inflation may be salary-related or price-related Gross premiums and gross premium reserves • Gross future loss random variable • Gross premiums via equivalence principle • Gross premiums based on other criteria • Probabilistic approach to premiums • Gross premium prospective reserves • Gross premium retrospective reserves • Policy reserves of participating contracts • Net premium policy reserves for participating contracts • Recursive relations between policy reserves S&AS: STAT3801 ADVANCED LIFE CONTINGENCIES 5 5.2 Gross future loss random variable for standard contracts Let t ˜ L be gross future loss random variable at duration t for policyholder aged x at entry Let K be random future lifetime of policyholder aged x + t t ˜ L = PV of future benefits + PV of future expenses- PV of future premiums Whole life insurance with gross premium G and sum insured S Initial expenses I at t = 0 only Renewal expenses e each year except first...
View Full Document

Page1 / 21

STAT3801_2011Unit5 - THE UNIVERSITY OF HONG KONG DEPARTMENT...

This preview shows document pages 1 - 6. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online