UECM3453 Insurance Practice
Tutorial 4 – Valuation on actuarial liabilities
1. Explain the main 2 types of liabilities.
Actuarial reserve (actuarial Liability)
Expense reserve (expense liability)
-computed the SHF level, typically using a DCF method based on the income (investment
return, surplus transfer) and outgo (expense, tax, RBC(T) charges) of the SHF, after
aggregating all reserve at policy/product/fund/office level,
-consistent to the 75% CL and highest HMHL, HMLL, LMHL, LMLL
-can be regarded as the provision of future loss of SHF
2. Explain how actuarial liabilities are computed for
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long term ordinary/traditional policies
long term IL policies
Group, accidental and health policies
a)
gross premium valuation method by considering all cash flows
V(t) =PV outgo- PV income
Outgo: death benefits, morbidity benefits, surrender benefits, commissions,
management expenses, agency related expenses, claim expenses, anticipated cash
payments, cash dividend, maturity benefit, taxation.
Income: PV of gross premium
Unit reserve: value of the underlying assets backing the unit
b)
non unit reserve: V(t)=PV outgo- PV income
outgo: death benefits, morbidity benefits, surrender benefits, commissions,
management expenses, claim expenses, guaranteed cash payments, maturity
benefits, investment expenses of managing the funds.
Income: unallocated premium, cost of ins, surrender charges, fund management
fees, monthly policy fees.
Unit reserve: value of the underlying assets backing the unit
c)
V(t)= premium liabilities +claim liabilities where
Pre.L = unearned portion of the pre. For each policy
UECM3453 Insurance Practice
Claim. L = provisions for notifies claims, outstanding claims and IBNR (incurred
but not yet reported claim)
PRAD: provision for risk margin of adverse division
Reserves will be valued with PRAD (app 75% CL) included in the assumptions
for mortality/morbidity, lapse, expense, IBNR, loss ratio that reflects latest
experience.
The reserve is computed on per policy basis and the max. result (typically
aggregated at fund level) from these 4 scenarios is held as actuarial reserve:
HMHL, HMLL, LMHL, LMLL
3. Explain 5 assumptions used for valuation of actuarial liabilities.
a) best estimate
-no margin for the risk of adverse deviations from the underlying assumptions
-from Australia’s Life Insurance Actuarial Standard Board (LIASB)
Best estimate liability is determined as the value of expected future payments and
receipts under the policy, based on the obligations at reporting date.
-assumption regarding future experience, most likely to materialize based on the available
past recent experience having regard to its credibility.
b) PRAD at 75% CL
-increase the stas. Confidence of the policy L and hence enhance the protection provided
to the policyholder benefits and should normally increase the policy L.
-AA may use normal or other dist. To derive the 75% CL
c) risk free dis.rate/net fund yield rate
- RFD rates should be used for valuation of liabilities for non-participating policies, non
unit reserves for investment linked policies and guaranteed portion of participating
policies.
-net fund yield rates should be used for valuation of total benefits (guaranteed)
d) PRE
-factors influencing PRE
The materials given to policyholders at the point of sales such as sales illustrations,
product brochures or flyers and policy contract.
If the AA believes that the policyholders will reasonably expect to receive more than the
contractual guaranteed benefits, or they will be able to force the insurer, through a court
of law or ow, to pay more benefits or expect to pay lower premium, then such increase
liabilities should be reflected in the valuation of policy liabilities.
UECM3453 Insurance Practice
e) expenses
-the expense experience is to be based on company most recent expense study. The
expense study should be carried out annually or some other frequency but in no
circumstance to be less frequent that every two yrs.
4.Explain MGS and GII yield used for the valuation of actuarial liabilities.
The development of a county requires the government to raise funds from the capital
market to finance the government’s development expenditure, working capitals and
promoting the growth of the country. In Malaysia, there are two types of government
bonds can help government to raise more capital: MGS , GII
MGS is coupon-bearing, long-term bonds issued by the government to raise funds for
development expenditures. They are the most actively traded bonds. The BNM regularly
issues 3 yrs