Chapter 36 - The big picture

Question 1

What are the main steps in product design and pricing

Answer 1

• Formulation of structure of product (with marketing)
• Decide on assumptions for expenses, interest, mortality, withdrawal
• Profit test to give premiums to meet set profitability target
• Given those premiums, sensitivity test; need to adjust premiums or structure
• Compare with competition, adjust premiums?
• Run model office with expected tranche of new business - are there any capital, tax or expense problems

Question 2

How can the risk of underestimating mortality, expenses,… be reduced

Answer 2

Offer the contract as a unit-linked contract with a variable charge