610 Other guaranteed premium products are products with or without a savings

610 other guaranteed premium products are products

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6.10 Other guaranteed premium products are products with or without a savings element, under which premiums are contractually guaranteed and cannot be changed by the insurer (even for identifiable groups of policies). 6.11 The PSR will apply for these products during the period of level premiums or the period of contractually guaranteed premium rates. 6.12 An example of a methodology for a product which has k years to run (when a level premium is payable or when the premium rates are contractually guaranteed) is as follows: 26
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C(r,t) = expected risk portion of claim in year t (t=1 for the first year), etc P(r,t) = expected risk portion of premium in year t (t=1 for first year), etc Prob(t) = probability of the policy being in force in year t Claim (t) = probability of a claim occurring in year t, given in force v = discount factor = 1/(1+discount rate) M = profit margin PV Claims = Σ (from t=1 to k) [C(r,t)–RC(r,t)]*Prob(t)*Claim(t)*v^(t) PV Premiums = Σ (from t=1 to k) [P(r,t)–RP(r,t)]*Prob(t)*v^(t) PV Profit = M*PV premiums PV Expenses = Σ (from t=1 to k) E(r,t)*Prob(t)*v^(t) Annual stepped premiums (with ability to review premium rates) 6.13 Annual stepped renewable life insurance means a contract in which the premiums each year are based on the current level of cover. For the purposes of the proposed tax reserving rules, these include contracts in which: premiums are level and payable through the term of the contract but the premiums may be changed in certain circumstances described in the contract; premiums are level and payable for some term shorter than the term of the contract (other than a single premium policy) and guaranteed in the contract not to change but the premiums may be changed in certain circumstances described in the contract; and contracts normally called three-yearly (or five-yearly, or ten-yearly) renewable that are expected to increase after that three, five, ten-year term as the person ages, but the insurer does not guarantee that the rate table will not change during the level premium phase. 6.14 With these products, the UPR is dependent on premium frequency, hence: UPR = RP% * t * P Where RP% = percentage of premium to meet claim cost, administration, commissions, claims, expenses, and profit element (for that remaining period) until next premium payment; t = period to next premium payment (as a proportion of a year); and P = actual last premium paid. 27
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Single premium 6.15 Single premium life insurance refers to life insurance coverage in which the entire premium is paid at one time at policy inception. 6.16 A life insurer cannot usually require the policyholder to pay for any price increase on these types of policies, so an opening PSR would be the generalised approach set out above. Here the remainder of the term would be the life of the policy.
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