IC-71: Actuarial Aspects of Product Development
IC-71 tests the actuarial and regulatory mechanics of turning a life-insurance idea into a filed, priced, and reservable product. Expect questions on assumptions, premium bases, reserves, non-forfeiture values, and the product-development lifecycle rather than sales technique.
Product development lifecycle
The sequence is idea screening, feasibility, pricing, documentation, regulatory filing, launch, and experience monitoring. The appointed actuary certifies the pricing basis and the policy liability; marketing and compliance cannot substitute for that sign-off.
Pricing identity
Use the equivalence principle: present value of gross premiums equals present value of benefits plus expenses plus profit margin, with margins for adverse deviation. Distinguish net premium (benefits only) from gross premium (benefits + expenses + margins). Assumptions cover mortality, interest, expenses, lapses, surrender, and tax. The Indian Assured Lives Mortality (2012-14) Ultimate table is a common mortality basis; the valuation interest rate must be appropriate to the product and regulation.
Reserves and non-forfeiture
A policy reserve is the present value of future benefits and expenses less the present value of future premiums. Early reserves can be negative because acquisition costs are front-loaded. Surrender values and paid-up values are linked to the reserve, not to the gross premium. Policy loans are typically capped by surrender value.
Worked example
A two-year term policy pays 100,000 on death. q1 = 0.01, q2 = 0.02, i = 10%. Expected claim year 1 = 1,000; PV = 909.09. Death in year 2 requires survival then death: 0.99 × 0.02 = 0.0198; expected claim = 1,980; PV = 1,980 / 1.1^2 = 1,636.36. Net single premium = 2,545.45. This excludes expenses, so it is not the gross premium.
Traps
Do not apply q2 without the survival factor; do not mix net and gross bases; do not ignore expense and lapse assumptions; do not equate reserve with surrender value; do not forget the applicable IRDAI product-filing route and actuarial certification. Check whether premium is single, annual, or monthly before discounting.