AKTUARIS.ORG.ID | Society Of Actuaries Of Indonesia GPV Discount Rates
Gross Premium Valuation
DISCOUNT RATES
(2)
2
Refresher: Fair Value
—
Assets
—
Liabilities
—
Duration
Extraction of discount rates from published
market data
Workshop using simple models of sample
policies:
—
Term (ROP)
—
Participating
(3)
Remember:
Life insurance is
1)
Intangible (not physical, it’s a “promise”)
2)
Contingent (mortality, maturity, surrender,
lapse,..)
3)
Long Term (could be a “life time”)
For each policy, we don’t know what the actual profit will be
until that individual policy finishes.
Reporting can be likened to posting an “interim” result.
(4)
4
Definition: Gross Premium Valuation
=
liability equal to the discounted value of future net cashflows
Cashflows (CF):
- Premiums - Expenses - Commission - Contingency - Death - Disablement - Surrender - Maturity - TaxDoes not include investment income.
- This is covered in the discount factors
GPV = - PV (CF
t)
all t
CF
t= total net cashflow
at time t
= -
v
tCF
t t = 0(5)
Policy data - premium - cover - age/sex - term
Assumptions - economic - actuarial
Gross Premium Valuation
Output: Cashflow
1 2 3 4
Premiums Expenses Commission Death
Disablement Surrender Maturity Tax
Valuation Model
(6)
6 Policy data - premium - cover - age/sex - term Assumptions - economic - actuarial
Gross Premium Valuation
Output: Cashflow
1 2 3 4
Premiums Expenses Commission Death Disablement Surrender Maturity Tax
Valuation Model
Schematic:
Next Steps
4) Set economic
assumptions
2) Build a model to
project cashflows
3) Need best estimate
actuarial assumptions
1) Will need policy
inforce data
(7)
Economic
- Investment returns - Inflation - benefits - expenses Actuarial - Mortality - Morbidity - Surrender - Expenses - acquisition - maintenance - investment
- Actual Investments
- Target Investment Strategy
- Market indices
- Expert analysis
- Industry experience
- Company experience
- Reinsurer
- Actuarial Investigations
- Activity based expense costings
- Analysis of past Earnings
(8)
8
Aims of IFRS
1.
To provide a Realistic view of the financial status of the reported entity
2.
Comparability:
Across companies
Across industries
Across countries
Principles based:
•
Published Guidelines
•
Not hard-set formulae and assumptions
+Can be adapted to exactly fit the business
+Flexible for changing conditions
-A range of interpretations
(9)
Refresher: Fair Value
—
Assets
—
Liabilities
—
Duration
Extraction of discount rates from published
market data
Workshop using simple models of sample
policies:
—
Term (ROP)
—
(10)
10
Fair Value
Also known as “Realistic” or “Market Based”
All components of the balance sheet
Earnings/Profit = change in Fair Value Balance Sheet
Assets at Market Value
Published data (eg shares, government bonds)
Independent assessment (eg Property)
Linked to market data (eg non publically traded investments)
(11)
So how does this link to the valuation of
Liabilities?
All investments are, in fact, a string of cashflows:
Bonds/Fixed interest
A series of coupon payments plus repayment of principal
Shares
A series of dividends
The capital appreciation reflects the change in value of future dividend
streams
Property
Rental stream, less costs of maintenance
(12)
12
How do markets place a value of these income
streams?
DISCOUNTING
Discount rate
Time period
The market valuation of assets is driven by Discount Factors placed
on their expected income stream. Dependent on:
— Interest rates (varies by time/duration)
— Risk/liquidity premium
Assume that Government Bonds are liquid and “risk free”, ie their
coupons and redemption are “100% certain”
Then the interest rates on government bonds can be used to calculate the
discount factors for all “Certain” Cashflows:
(13)
The same applies to liabilities:
Discount rates
Value cashflows according to their (investment market
related) certainty
“Certain” cashflows should be valued as per risk free rate
“Uncertainties” in respect of Non Investment related
Contingencies (such as mortality) are covered within the
setting of the actuarial assumptions
All* cashflows
should be discounted
at the risk free rates
* The ONLY exceptions are any cashflow
dependent on actual investment Performance. Eg:
•Par dividend
(14)
14
Corollaries
Liabilities are independent of actual (or assumed future)
investment mix
Eg An obligation to a policyholder does not change because the
investment department decided to invest in more shares
Liabilities fall if interest rates rise
But so does the market value of assets.
Therefore a resultant profit or loss from interest rate changes is
dependent on the portfolio cashflow and duration matching (ALM)
—
If the portfolio duration volatility (modified duration) of investments is greater
than liabilities then a reported loss results from a rise in interest rates
—
Vice versa for a fall
(15)
Question 1: What about Unit Linked?
Like all insurance liabilities unit linked should be valued as the
PV of future net cashflows:
Premiums and investment returns
Insurance Claims, surrenders, maturities
Expenses and commissions
Fund growth assumptions impact the projected amounts for
surrenders and maturities
Other cashflows are “certain”
One approach is “strip out” the unit fund parts.
Left with charges (on premium and funds) and expenses and
commissions
(16)
16
Question 2: What about Par Business?
Like all insurance liabilities Par business should be valued as
the PV of future net cashflows:
Premiums and investment returns
Insurance Claims, surrenders, maturities, dividends
Expenses and commissions
Dividend assumptions, if commuted, impact the projected
amounts for surrenders and maturities
Other cashflows are “certain”
One approach is strip out the dividend part.
Projected dividend needs to be consistent with assumed investment
return on investments
Some countries have a cost of guarantee. This involves very complex
stochastic modelling
(17)
Question 3: are there other Economic assumptions?
Yes:
Investment related expenses
Net off discount rate
Inflation
General expense inflation (eg used for policy indexation) should be
consistent with interest rates
Eg long-term inflation shouldn't be higher than interest rates
Inflation for office expenses should be consistent with budgets
Policyholder Dividends
Needs to be consistent with assumed investment return (ie discount rate)
on the underlying backing assets
(18)
18
Question 4. What discount rate to use for very
long term?
The longest available government bonds are 30 years
But many liability cashflows extend beyond that
Considerations:
Use 30 year interest rate
But can lead to very volatile results
Prescribed interest rate
But needs to be consistent with market reality
Smoothed interest rate
Eg average 30 year rate for last 5 years,
Eg extrapolation of yield curve
(19)
5. What is Matching and Duration?
If we consider that liabilities are a series of net cashflows
Cashflow Matching is whereby a set of assets is purchased
such that their cashflows exactly offset the liability cashflows
If this could be achieved:
Value of liabilities exactly = MV of assets
The balance sheet is fully immune to changes in interest rates
However, in practice, perfect cashflow matching is not
possible.
A more realistic aim is to match the Duration of assets and liabilities
If so the balance sheet is immune to small changes in interest rates
(assuming a level change)
(20)
20
Duration
Average (Mean) Duration:PV of cashflows (weighted by duration they are due) PV of cashflows
Modified Duration: Derivative of (change in) price per small change in interest rates
Modified duration = v * Mean duration Example:
If the $100m asset portfolio has a modified duration of 8 years: If interest rates rise by 0.1% then the MV of the portfolio is:
$100 * (1+(8*-0.1%)) = $99.2m, a reduction of $0.8m
Also assume that the portfolio belongs to a life insurance company: Fair value liabilities of $80m Modified duration of 15 years
If interest rates rise by 0.1% then the fair value of the liabilities is
$80m*(1+(15*-0.1%) = $78.8, a reduction of $1.2m
(21)
Remember:
THERE IS NO SUCH
THING AS A FREE
(22)
22
Eg arbitrarily changing the Par dividend rate
should not create
“instant” profits
Eg changing the assumed asset mix
should not create
“instant” Profits
Remember:
THERE IS NO SUCH
THING AS A FREE
(23)
AASB 1038 paragraph 10.2.2
Investments backing life insurance liabilities or life
investment contract liabilities are permitted to be
measured at fair value through profit or loss under AASB
139. This is because the measurement of life insurance
liabilities under this Standard incorporates current
information and measuring the financial assets backing
these life insurance liabilities at fair value eliminates or
significantly reduces a potential measurement
inconsistency which would arise if the assets were
classified as available for sale or measured at amortised
cost.
Example: Australian IFRS
(24)
24
AASB 1038: Discount Rates
1. To the extent that the benefits under life insurance contracts are not contractually linked to the performance of the assets held, the life insurance liabilities shall be discounted for the time value of money using risk-free discount rates based on current observable, objective rates that relate to the nature, structure and term of the future obligations. 2. To the extent that the benefits under life insurance contracts are contractually linked to
the performance of the assets held, the life insurance liabilities shall be discounted using discount rates based on the market returns on assets backing life insurance liabilities.
3. In applying number 1 above, the discount rates adopted are not intended to reflect risks inherent in the liability cash flows, which might be allowed for by a reduction in the
discount rate in a fair value measurement, nor are they intended to reflect the insurance and other non-financial risks and uncertainties reflected in the life insurance liabilities. The discount rates are not intended to include allowance for the cost of any options or guarantees that are separately measured as part of the life insurance liabilities.
4. In applying number 1 above, typically, government bond rates may be appropriate
discount rates for the purposes of this Standard, or they may be an appropriate starting point in determining such discount rates.
(25)
AASB 1038: Deposit Components
Some life insurance contracts contain both an insurance
component and a
deposit component
. In some cases,
an insurer is permitted to
unbundle
those components
(26)
26
Refresher: Fair Value
—
Assets
—
Liabilities
—
Duration
Discount Rates
Workshop using simple models of sample
policies:
—
Term (ROP)
—
Participating
Aims:
(27)
Discount Rates (1/3)
This Section discusses the proposed GPV regulation to be
implemented in Indonesia and especially on the topic of risk
discount rates to be employed in the valuation of reserves.
To be consistent with the development of IFRS and Fair Value
Accounting, we are proposing that the expected future cashflows to
be discounted with risk free rates based observable, objective
rates that relate to the nature, structure and term of future
obligation.
In Indonesia, this typically relates to the yield of bonds which is
issued by the Government of Indonesia, including both IDR and
USD. We can used the yield-to-maturity of the Indonesian
Government Bond to obtain the risk free forward yield at each of
the future term.
(28)
28
Discount Rates (2/3)
In this presentation, we defined the spot yield and forward yield as
follows:
• Yield-to-maturity: is the internal rate of return (IRR, overall interest rate) earned by an investor who buys the bond today at the market price, assuming that the bond will be held until maturity, and that all coupon and principal payments will be made on schedule.
• Spot Yield: is the reference to fixed-income securities reimbursed at maturity, without any intermediate payment of coupons and/or
principal. For the purpose of this presentation, we assume the yield-to-maturity equals to spot yield.
• Forward Yield: is the implied yield from a spot yield curve of
investment return of the instrument in the future, i.e. yield from end of Year 1 to end of Year 2.
(29)
Discount Rates (3/3)
Why is forward yield used?
• The forward yield is used because it represent the expected yield of investment of that particular period. The methodology we have
employed in the projection is to project cashflows for a particular time period. We then discount those cashflows using the corresponding yield at that particular period of time.
(30)
30
Steps in getting risk free forward yield curve
1. Obtain yield-to-maturity yield curve
• Check against other source or previous period
2. Derive forward yield curve
(31)
1. Obtaining risk-free rate
The definition of risk free rates would be Yield-To-Maturity (YTM)
of both IDR and USD Indonesian government bonds.
There are a number of sources one can obtain Indonesian
government bonds price information including:
• Data information service such as Bloomberg
• Indonesia Bond Pricing Authority (IBPA)
(32)
32
Indonesia Bond Pricing Authority (Lembaga Penilaian
Harga Efek)
On Sept 19th 2007 Bapepam-LK Regulation had issued regulation
No. V.C.3 regarding Bond Pricing Agency(LPHE). This regulation
regulates the requirements on establishment and liabilities of the
IBPA as an institution that conducts valuation on debt securities,
Sukuk, and other securities in a way that objective, independent,
credible, and accountable.
According to Bapepam-LK circular (Normor: KEP-367/BL/2012),
effective from 1
stJanuary 2013, all mutual fund companies will be
required to use the bond price information from IBPA (LPHE) for
the evaluation of unit-price.
(33)
Information on IBPA website
(34)
34
Getting the bond yield info from IBPA website (1/3)
Bond
Market
(35)
Getting the bond yield info from IBPA website (2/3)
Daily MtM Price &
(36)
36
(37)
Indonesia Government Yield Curve & Government
Bond Indicies from IBPA
–
taken from IDX websit
(38)
38
Getting the bond yield info from IDX website (1/3)
Informasi
Pasar
(39)
Getting the bond yield info from IDX website (2/3)
Indonesia Government
Securities Yield Curve (IGSYC
(40)
40
(41)
We have checked the bond yield information against Bloomberg.
(42)
42
The information is mostly consistent between Bloomberg and IBPA
except for the longer date securities.
For longer dated securities, the yield quoted by Bloomberg is lower
than those quoted by IBPA.
Considerations from previous slide:
• Use 30 year interest rate
• But can lead to very volatile results
• Prescribed interest rate
• But needs to be consistent with market reality
• Smoothed interest rate
• E.g. average 30 year rate for last 5 years,
• E.g. extrapolation of yield curve
• Needs to be accurately prescribed
(43)
43
2. Derivation of forward yield (1/3)
Using the information dated 23
rdJuly as an example and
yield-to-maturity curve from IBPA. We are approximating spot rates using
the yield-to-maturity.
Derive forward yield curve from the spot yield curve using the
bootstraping formula:
• (1 + f(t-1) to (t)) = (1 + rt)t / (1 + r t-1)t-1
where
• rt : spot yield from time 0 to t
Term to
Maturity Yield To Maturity
Term to
Maturity Yield To Maturity
Term to
Maturity Yield To Maturity 1 4.3607% 11 5.9893% 21 6.6101% 2 4.8760% 12 6.0861% 22 6.6373% 3 5.1189% 13 6.1752% 23 6.6605% 4 5.2552% 14 6.2560% 24 6.6803% 5 5.3585% 15 6.3284% 25 6.6971% 6 5.4576% 16 6.3926% 26 6.7112% 7 5.5610% 17 6.4491% 27 6.7232% 8 5.6689% 18 6.4984% 28 6.7333% 9 5.7783% 19 6.5413% 29 6.7418% 10 5.8861% 20 6.5783% 30 6.7489%
(44)
44
2. Derivation of forward yield (2/3)
Using the formula from previous slide.
Eg. for forward rate between Year 2 to Year 3
F2 to 3 = (1 + r3)3 / (1 + r
2)2 – 1
5.6064% = (1 + 5.1189%)3 / (1 + 4.9760%)2 - 1
Rates Applicable Forward rate Rates Applicable Forward rate Rates Applicable Forward rate
From To From To From To
0 1 4.3607% 10 11 7.0268% 20 21 7.2481%
1 2 5.3938% 11 12 7.1568% 21 22 7.2101%
2 3 5.6064% 12 13 7.2503% 22 23 7.1722%
3 4 5.6652% 13 14 7.3120% 23 24 7.1367%
4 5 5.7727% 14 15 7.3472% 24 25 7.1011%
5 6 5.9545% 15 16 7.3603% 25 26 7.0643%
6 7 6.1835% 16 17 7.3572% 26 27 7.0357%
7 8 6.4273% 17 18 7.3400% 27 28 7.0064%
8 9 6.6576% 18 19 7.3165% 28 29 6.9801%
9 10 6.8613% 19 20 7.2837% 29 30 6.9550%
Term to
Maturity Spot Yield 1 4.3607% 2 4.8760% 3 5.1189%
(45)
2. Derivation of forward yield (3/3)
The following chart shows the spot yield and the implied forward
yield.
0,0000% 1,0000% 2,0000% 3,0000% 4,0000% 5,0000% 6,0000% 7,0000% 8,0000%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Yi
e
ld
Term (Years)
Spot Yield Forward Yield
(46)
46
Refresher: Fair Value
—
Assets
—
Liabilities
—
Duration
Extraction of discount rates from published
market data
Workshop using simple models of sample
products:
—
Term (ROP)
—
Participating
Aims:
(47)
Warning
–
The
following are
examples only.
(48)
48
ROP Term Life (1/9)
Product:
• 10 Year Return of Premium Term
• 50% ROP at the end of 10 years
• Surrender Value from 3rd Policy Year onwards
• Non-participating
• 100% of Sum Assured on death
(49)
49
ROP Term Life (2/9)
Projection:
• Including all benefits and future cashflows:
premium, expenses, commission, death, surrender, maturity
• Projection Assumptions
• Age: 40 Male
• Premium: 100
• SA: 20,000
• Surrender: 37% / 22% / 12% / 11% ...
• Mortality: TMI2011 Male
• Investment: 7.5%
• Expenses: acquisition 20% / maintenance 2%
• Commission: acquisition 25% / renewal 5% (renewal also in Year 1)
• Reserving Assumptions:
• Margin for adverse deviation (Mfad) on Mortality: 100% -> 200% of Projection Assumption
• Mfad on Surrender: -50% -> 50% of Projection Assumption (negative Mfad)
• Mfad on Expense: 50% -> 150% of Projection Assumption
(50)
50
ROP Term Life
–
Reserving Loop (3/9)
The following table provides a summary of the reserving / liabilities
cashflows using the example from the previous slide:
Initial Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Premiums 8.33 80.16 75.07 67.81 63.56 59.57 55.80 52.23 48.85 47.14 46.73
Claims -5.10 -49.06 -52.55 -53.16 -55.68 -58.62 -62.27 -66.44 -70.93 -78.07 -88.04
Surrender 0.00 0.00 0.00 -0.52 -1.39 -1.96 -2.28 -2.44 -2.26 0.00 0.00
Maturity 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -232.47
Commission -25.42 -4.01 -3.75 -3.39 -3.18 -2.98 -2.79 -2.61 -2.44 -2.36 -2.34
Expenses -45.25 -2.40 -2.25 -2.03 -1.91 -1.79 -1.67 -1.57 -1.47 -1.41 -1.40
Total -67.43 24.69 16.52 8.71 1.40 -5.77 -13.22 -20.82 -28.25 -34.70 -277.52
(51)
-300.00 -250.00 -200.00 -150.00 -100.00 -50.00 0.00 50.00
Initial Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Valuation Net Cashflow
Net Cashflows
ROP Term Life
–
Reserving Loop (4/9)
The following charts show the projection of net reserving / liabilities
cashflows using the figures from previous slide: Acquisition
Costs
Premium not sufficient to cover benefits & expenses at later years
(52)
52
ROP Term Life
–
Projection (5/9)
The following charts show the projection of sum assured, reserves, surrender value and premium. -5,000.00 10,000.00 15,000.00 20,000.00 25,000.00 -50 100 150 200 250 300
Initial Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9Year 10 Projected Inforce
Surrender Value (In Force) (LHS) Statutory Liability (LHS)
Annual Premium (LHS)
(53)
ROP Term Life
–
P&L (6/9)
The following table provides a summary of the Projection profit and loss using reserve information from previous slide
Year 1 2 3 4 5 6 7 8 9 10
Premium 78.63 56.51 46.29 40.91 36.17 31.98 28.26 24.97 23.52 23.41
Investment Income 12.86 12.46 12.56 12.74 12.60 12.18 11.51 10.61 9.86 9.09
Claims 24.06 19.78 18.14 17.92 17.80 17.84 17.97 18.12 19.47 22.06
Surrenders 0.00 0.00 0.70 1.79 2.37 2.61 2.63 2.32 0.00 0.00
Maturities 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 116.77
Change in reserve 167.16 1.15 4.51 0.45 -3.73 -7.45 -10.74 -12.85 -8.02 -130.49
Expenses Initial 30.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Renewal 1.57 1.13 0.93 0.82 0.72 0.64 0.57 0.50 0.47 0.47
Comm Initial 25.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Renewal 3.93 2.83 2.31 2.05 1.81 1.60 1.41 1.25 1.18 1.17
(54)
54
ROP Term Life
–
P&L Items (7/9)
Projection of items in the Profit and Loss Statement
(200.00) (150.00) (100.00) (50.00) -50.00 100.00 150.00 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Projected Reported Results
Comm Expenses
Change in reserve Surrenders & Maturities Claims
Bonus
Investment Income Premium
(55)
ROP Term Life
–
Net Earnings (8/9)
The following charts show the projection of profit
(200.00) (150.00) (100.00) (50.00) -50.00 100.00 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Projected Net Earnings
Net Cashflow Statutory Profit
(56)
56
ROP Term Life
–
Net Earnings (No Pad) (9/9)
The following chart showing the projection of key indicators assuming
projection assumptions equal to reserving assumptions – notice all profit is realized in Year 1.
(120.00) (100.00) (80.00) (60.00) (40.00) (20.00) -20.00 40.00 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Projected Net Earnings
Net Cashflow Statutory Profit
(57)
Refresher: Fair Value
—
Assets
—
Liabilities
—
Duration
Extraction of discount rates from published
market data
Workshop using simple models of sample
policies:
—
Term (ROP)
—
(58)
58
Participating(1/9)
Product:
• 10 Year Return of Premium Term
• 50% ROP at the end of 10 years
• Surrender Value from 3rd Policy Year onwards
• Participating - Interest Bonus only based on NLP Reserve with pricing assumption of 6.5%
• 100% of Sum Assured on death
(59)
59
Participating (2/9)
Projection:
• Including all benefits and future cashflows:
premium, expenses, commission, death, surrender, maturity
• Projection Assumptions • Age: 40 Male
• Premium: 100
• SA: 20,000
• Surrender: 37% / 22% / 12% / 11% ...
• Mortality: TMI2011 Male
• Investment: 7.5%
• Expenses: acquisition 20% / maintenance 2%
• Commission: acquisition 25% / renewal 5% (renewal also in Year 1)
• Bonus depending on the Investment Return
• Reserving Assumptions:
• Pfad on Mortality: 100% -> 200% of Projection Assumption
• Pfad on Surrender: -50% -> 50% of Projection Assumption (negative Mfad)
• Pfad on Expense: 50% -> 150% of Projection Assumption
• Economic assumption using forward yield derived from the Indonesian Government Bond Yield as at 23 July 2012
(60)
60
Participating
–
Reserving Loop (3/9)
The following table provides a summary of the reserving / liabilities
cashflows using the example from the previous slide:
Initial Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Premiums 8.33 80.16 75.07 67.81 63.56 59.57 55.80 52.23 48.85 47.14 46.73
Bonus 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -0.35 -0.84
Claims -5.10 -49.06 -52.55 -53.16 -55.68 -58.62 -62.27 -66.44 -70.93 -78.07 -88.04
Surrender 0.00 0.00 0.00 -0.52 -1.39 -1.96 -2.28 -2.44 -2.26 0.00 0.00
Maturity 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -232.47
Commission -25.42 -4.01 -3.75 -3.39 -3.18 -2.98 -2.79 -2.61 -2.44 -2.36 -2.34
Expenses -45.25 -2.40 -2.25 -2.03 -1.91 -1.79 -1.67 -1.57 -1.47 -1.41 -1.40
Total -67.43 24.69 16.52 8.71 1.40 -5.77 -13.22 -20.82 -28.25 -35.05 -278.36
(61)
-300.00 -250.00 -200.00 -150.00 -100.00 -50.00 0.00 50.00
Initial Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Valuation Net Cashflow
Net Cashflows
Participating
–
Reserving Loop (4/9)
The following charts show the projection of net reserving / liabilities
cashflows using the figures from previous slide: Acquisition
Costs
Premium not sufficient to cover benefits & expenses in later years
(62)
62
Participating
–
Projection (5/9)
The following charts show the projection of sum assured, reserves, surrender value and premium. -5,000.00 10,000.00 15,000.00 20,000.00 25,000.00 -50 100 150 200 250 300
Initial Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9Year 10 Projected Inforce
Surrender Value (In Force) (LHS) Statutory Liability (LHS)
Annual Premium (LHS)
(63)
Participating
–
P&L (6/9)
The following table provides a summary of the Projection profit and loss using reserve information from the previous slide
Year 1 2 3 4 5 6 7 8 9 10
Premium 78.63 56.51 46.29 40.91 36.17 31.98 28.26 24.97 23.52 23.41
Investment Income 12.91 12.50 12.60 12.78 12.64 12.22 11.54 10.65 9.90 9.11
Bonus 0.37 0.58 0.77 0.90 0.99 1.03 1.04 1.03 1.11 1.17
Claims 24.06 19.78 18.14 17.92 17.80 17.84 17.97 18.12 19.47 22.06
Surrenders 0.00 0.00 0.70 1.79 2.37 2.61 2.63 2.32 0.00 0.00
Maturities 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 116.77
Change in reserve 167.73 1.11 4.50 0.45 -3.73 -7.45 -10.74 -12.85 -8.16 -130.88
Expenses Initial 30.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Renewal 1.57 1.13 0.93 0.82 0.72 0.64 0.57 0.50 0.47 0.47
Comm Initial 25.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
(64)
64
Participating
–
P&L Items (7/9)
Projection of items in the Profit and Loss Statement
(200.00) (150.00) (100.00) (50.00) -50.00 100.00 150.00 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Projected Reported Results
Comm Expenses Change in reserve Surrenders & Maturities Claims
Bonus
Investment Income Premium
(65)
Participating
–
Net Earnings (8/9)
The following charts show the projection of profit
(200.00) (150.00) (100.00) (50.00) -50.00 100.00 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Projected Net Earnings
Net Cashflow Statutory Profit
(66)
66
Participating
–
Net Earnings (No Pad) (9/9)
The following chart showing the projection of key indicators assuming
projection assumptions equal to reserving assumptions – notice all profit is realized in Year 1.
(120.00) (100.00) (80.00) (60.00) (40.00) (20.00) -20.00 40.00 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Projected Net Earnings
Net Cashflow Statutory Profit
(67)
(68)
68
(1)
Participating
–
P&L (6/9)
The following table provides a summary of the Projection profit and loss using reserve information from the previous slide
Year 1 2 3 4 5 6 7 8 9 10
Premium 78.63 56.51 46.29 40.91 36.17 31.98 28.26 24.97 23.52 23.41
Investment Income 12.91 12.50 12.60 12.78 12.64 12.22 11.54 10.65 9.90 9.11
Bonus 0.37 0.58 0.77 0.90 0.99 1.03 1.04 1.03 1.11 1.17
Claims 24.06 19.78 18.14 17.92 17.80 17.84 17.97 18.12 19.47 22.06
Surrenders 0.00 0.00 0.70 1.79 2.37 2.61 2.63 2.32 0.00 0.00
Maturities 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 116.77
Change in reserve 167.73 1.11 4.50 0.45 -3.73 -7.45 -10.74 -12.85 -8.16 -130.88
Expenses Initial 30.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Renewal 1.57 1.13 0.93 0.82 0.72 0.64 0.57 0.50 0.47 0.47
Comm Initial 25.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
(2)
Participating
–
P&L Items (7/9)
Projection of items in the Profit and Loss Statement
(200.00) (150.00) (100.00) (50.00) -50.00 100.00 150.00 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Projected Reported Results
Comm Expenses Change in reserve Surrenders & Maturities Claims
Bonus
Investment Income Premium
(3)
Participating
–
Net Earnings (8/9)
The following charts show the projection of profit
(150.00) (100.00) (50.00) -50.00 100.00 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Projected Net Earnings
Net Cashflow Statutory Profit
(4)
66
Participating
–
Net Earnings (No Pad) (9/9)
The following chart showing the projection of key indicators assuming
projection assumptions equal to reserving assumptions – notice all profit is realized in Year 1.
(100.00) (80.00) (60.00) (40.00) (20.00) -20.00 40.00 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Projected Net Earnings
Net Cashflow Statutory Profit
(5)
(6)