Ch 12: Modelling

Question 1

Main uses of modelling:

Answer 1

• Costing and reserving for options
• Model office - new business projections, embedded values, solvency, takeovers
• Reserves - statutory and management accounting
• Pricing - profit, premium rates

Question 2

Basic features of health insurance model

Answer 2

• Needs to allow for all cashflows that may arise, which will depend on the nature of the contracts, premium and benefit structure, discretionary benefits (convert, extend or increase cover w/o evidence of health)
• Model needs to allow for cashflows arising from any supervisory requirement to hold reserves and to maintain an adequate margin of solvency
• Model would need to project separately the cashflows arising from different states and reflect the transitions between these states
• Cahs