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Why consider the asset share when setting discontinuance terms?

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asked Nov 9 in BUS 4027W - Actuarial Risk Management by Rowan (3,200 points)

In order to set discontinuance terms we need to consider the asset share. How does considering the asset share help you set the discontinuance terms?

Is it maybe because we want to see where it is negative and then we might decide not to offer surrender payments as this will worsen our position?

It also says that the asset share is comprised of the accumulation of premiums with returns - expenses - cost of cover. What is the cost of cover?

1 Answer

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answered Nov 21 by jolegutko (520 points)

Asset share is basically "how much money would be in this product's bank account after receiving all the premiums, paying out all the expenses and claims, and earning investment returns". (Cost of cover is basically the cost of claims paid).

So the asset share are the assets of the policy - what is available to pay out surrender values. Setting surrender values needs to consider that - it is bad practice (but sometimes unavoidable) to pay out more to any policyholder than their portion of the asset share. Think of a situation where you have to discontinue all policies in a book - you would have to pay out more money than you have, and we try to avoid that.

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