Ch12: General business environment (2)

Question 1

Types of regulatory restrictions

Answer 1

1. a restriction on the types of contracts an insurance company can offer
2. restrictions on the premium rates, or charges, that can be used for some types of contracts
3. restrictions on the rating factors that may be used to calculate premiums
4. requirements relating to the terms and conditions of the contracts offered
5. restrictions on the channels through which life insurance may be sold or requirements as to the procedure to be followed and info to be given
6. restrictions on the ability to underwrite e.g. prohibition of use of genetic rest results
7. an indirect constraint on the amount of business that can be written
8. may limit what a company would like to do in terms of investment
   - the types of asset
   - the amount of any particular asset that can be taken into account for the purpose of demonstrating solvency
   - extent to which mismatching is allowed

Question 2

Approaches to taxation

Answer 2

• tax on annual profits of the business (excess of change in assets over change in liabilities, generally supervisory reserves)
• tax on investment income less some (or all) operating expenses
• might be tax on premium income

Question 3

In terms of tax, the overall attractiveness of a life insurance product compared to other products depends on

Answer 3

1. the taxation treatment of the premiums paid (are they deductible from taxable income)
2. the taxation of the life insurer’s funds during the life of the contract
3. the taxation treatment of the eventual policy benefits