III IC-92 flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Gross premium

The premium the policyholder pays; it equals the expected benefit cost plus expense cost plus profit and risk load, each quantified separately so sensitivity to assumptions is visible.

Net premium

The premium whose present value equals the present value of benefits on the valuation basis; it excludes expenses and profit and is used to compute the net premium reserve.

New business strain

The cash cost at issue equal to acquisition expenses plus the reserve increase minus first-year premium margins; it drives the capital the product requires at launch.

Asset share

Accumulated premiums less accumulated expenses and benefit costs, accumulated at the earned rate; it is the benchmark against which cash values and dividends are tested.

Actuarial control cycle

The iterative governance loop: define the problem, set assumptions, build the model, communicate results, monitor actual experience, and revise assumptions to reprice the product.

Actual-to-expected analysis

A comparison of observed experience to the assumptions used in pricing, usually credibility weighted so that a single year of experience does not trigger a full assumption change.

Break-even year

The first duration in which cumulative discounted profit turns positive; a shorter break-even year reduces the product's exposure to early lapse.

Return on capital

Present value of distributable earnings divided by the capital required to support the product; it allows comparison of designs that consume different amounts of capital.

Lapse-supported product

A design whose profitability depends on a minimum lapse rate; the dependency must be disclosed and tested because high lapse can turn the product into a loss.

Multiple decrement table

A table combining death, lapse, and surrender rates; decrement probabilities must be computed from it jointly rather than applying each rate independently to survival.

Discount factor

The multiplier (1+i)^-t applied to a cash flow at duration t for annual flows; monthly flows require the equivalent monthly rate so annual accumulation matches.

Guarantee cost

The difference between the value of the guaranteed benefit and the value of the same benefit without the guarantee, measured under a market-consistent stochastic model.

Valuation basis

The assumptions used to compute reserves; generally more conservative than the pricing basis, and the gap between them is a source of strain funded by surplus.

Pricing basis

The assumptions used to set premiums and test profitability; it should be documented with source, rationale, and margin for adverse deviation for each assumption.

Margin for adverse deviation

An explicit addition to a best-estimate assumption that protects against unfavorable experience; it is distinct from the profit load in the gross premium.

Profit load

The component of the gross premium that provides the planned return to the company; it is separate from margins held for adverse deviation.

Nonforfeiture minimum

A regulatory floor on the cash value or benefit available on lapse or surrender; a design that cannot fund it at the assumed lapse rate is not viable.

Cash value versus reserve

Cash value should not exceed the reserve at any duration; otherwise a surrender creates a surplus loss for the company.

Front-end load

A charge deducted early in the policy that produces low early reserves and high early profit; it must be disclosed and must respect regulatory limits.

Fixed per-policy expense

A cost that does not vary with premium or face amount; it creates negative economies of scale and can make small policies unprofitable at standard premium.

Credibility weighting

Blending company experience with industry data according to the volume of credible data, so that assumption changes are justified by sufficient evidence.

Sensitivity testing

Repricing under adverse mortality, lapse, expense, and interest scenarios; a product whose profit disappears under a modest adverse shift is not adequately loaded.

Duration gap

The difference between asset and liability durations; a gap is itself a priced risk for products with long-duration guarantees and requires asset-liability matching.

Quota share reinsurance

A proportional reinsurance arrangement that reduces new business strain and volatility; its cost enters the gross premium as an expense.

Stop-loss reinsurance

Coverage that protects against catastrophic mortality or aggregate claims above a threshold; it reduces tail risk but does not reduce expected claim cost.

Contribution principle

The rule that experience gains and losses are allocated among policyholders and the company according to a documented and equitable formula.

Dividend scale

The schedule of dividends for participating policies; it must be supportable by the asset share and by the actual experience of the block.

Statutory versus economic basis

Two measurement bases for product profit; a product may be profitable on one and value-destroying on the other, and the difference must be documented.

Underwriting class selection

The choice of how many risk classes to use; more classes reduce adverse selection but raise misclassification risk and underwriting expense.

Product filing memorandum

The actuarial document demonstrating that the premium is self-supporting under the valuation basis and that the reserve method complies with the applicable standard.

Post-launch review

A scheduled comparison of actual mortality, lapse, expense, and interest to pricing assumptions, reported to the pricing owner and used to trigger repricing.

Model risk

The risk that a pricing model is wrong or misapplied; controls include documented limitations, independent checks, and testing against closed-form cases.