Chapter 3: IA & DA Flashcards
IA: What surrender value not normally available?
It is because of the anti-selection risk.
The policyholder who stands to gain most from surrendering an annuity is the one who is in severe ill-health and may not expect to receive many more annuity payments anyway.
This is a very strong argument for not offering a withdrawal benefit on individual annuities.
IA: Capital requirements
The contracts can give rise to significant capital requirements, depending on the relationship between the pricing and supervisory reserving bases.
Rules regarding solvency margins can significantly increase this requirement in certain countries, for example the EU countries.
IA: Capital strain
Capital strain can arise on single premium contracts even though the full premium for the contract is received at outset. If the supervisory authorities require the insurance company to set up reserves and solvency capital larger than the single premium (less any expenses), then capital strain does arise.
DA: Capital requirments
Capital requirements are as for an endowment assurance contract in so far as covering the lump sum benefit.
These will vary slightly according to the pattern of death benefits provided during the period before the vesting date (eg return of premiums with or without interest, etc).
Additional capital may be required to cover any guaranteed terms for converting between a lump sum and a pension.
