Chapter 38

Question 1

State the issues surrounding the amount of surplus to distribute for an insurer

Answer 1

• Policyholder, shareholder and staff expectations
• Provision for capital
• Business objectives
• Margins for future adverse experience

Question 2

State the issues surrounding the amount of surplus to distribute for a benefit scheme

Answer 2

• Legislation
• Tax treatment
• Scheme rules
• Discretion of sponsors or trustees

Question 3

State 12 reasons for an AoS

Answer 3

DRIVERS of surplus and VAMPing up financial insights to get Fit data for decision making
1. D – Determine the assumptions that are most financially significant
2. R – Reconcile the values for successive years
3. I – Identify non-recurring surplus components
4. V – Validate the calculations and assumptions
5. E – Show the Effect of writing new business
6. R – Show the Results of valuation assumptions vs. actual experience
7. S – Provide a Spot check (valuation data & process independently)
8. V – Variance analysis (parts vs. whole)
9. A – Accounts information for provider
10. M – Management information
11. P – Pay data (executive remuneration)
12. F – Identify Feedback trends for the actuarial control cycle

Question 4

State some levers on surplus

Answer 4

• Good underwriting
• Good claims assessing and management
• Incentives not to claim
• Incentives to renew
• Claim reviews
• Reinsurance
• Using excesses and copayments and limits
• Reducing future benefits - changing formula for DB
• Minimise guarantees
• Control expenses
• Change investment strategy to increase returns
• Efficiently manage tax (avoid penalties or use allowances in full)

Question 5

State some sources of surplus

Answer 5

• Mortality
• Morbidity
• Claim frequency
• Claim amounts
• Premiums received
• New business levels
• Withdrawals or lapses
• Investment income and gains
• Expenses
• Commission
• Tax
• Inflation
• Salary growth