Product Design and Pricing
Product design takes into account various factors, including current competitive products in the market, regulatory constraints, innovation and market needs in order to generate a concept and product framework that fits both brokers’ expectations and the insurer’s profitability criteria. It is also necessary to take account of reinsurance or other risk mitigation measures. Profitability is tested with respect to the company’s expenses like commission and administration as well as expected costs pertaining to mortality, morbidity and other decrements. In some instances there are specific factors that need to be incorporated for example the effect of AIDS or longevity in the case of annuity products.
Product pricing involves the prediction of all costs relating to a product in order to fix a price for the benefits provided by a contract that will cover these costs in the long run and produce a profit for the insurer.
Sometimes competitive pressures or standard market rates puts a ceiling on premium levels. It could also happen that the environment according to which a product was priced changes and premium rates cannot be altered immediately because of guarantees. In these instances the rates need to be tested for profitability. A profit testing exercise reveals expected profit margins alongside the conservatism of the assumptions underlying the business.
SolveCo assists companies in testing premium rates for profitability of newly developed products as well as existing products to ensure the long term profitability of the company.
Embedded and Appraisal Values
Embedded value is the present value of future profits expected from existing business taking into account the company’s net worth and cost of required capital and is therefore a measure of the value of the company’s book of business. This measure can be used instead of less informative ones like premium income for performance attribution since high premium income does not necessarily mean substantial profits for the company. It is also used in instances where a business needs to be valued for the sale thereof.
SolveCo assists clients in the calculation of embedded and appraisal values. We also assist potential new insurance companies with the application for a life license. The application normally consists of a five-year business plan and the completion of statutory forms that has to be submitted to the regulatory body.
Reinsurance Negotiation and Optimisation
Reinsurance can be expensive in risky ventures where a margin is required in excess of the normal risk premium in order for the reinsurer to carry those risks. The structure of reinsurance should therefore be chosen to optimize the balance between the insurer’s risk appetite and the level of profit that is lost due to the excess risk being reinsured.
SolveCo’s team members have experience in working in the reinsurance industry and are able to arrange efficient reinsurance structures and negotiate reinsurance premiums for the business.
Valuations and Capital Management
Life insurance companies perform asset and liability valuations as part of the risk management and to demonstrate solvency to the regulator. The basis on which the valuation is performed depends on the purpose of the valuation. Along with this goes the management of the company’s capital and free assets to make sure it is efficiently utilised. Various tools exist to assess the insurer’s capital requirements and budget for the strain caused by new business.
SolveCo is experienced in assisting corporate actuarial teams with valuations of life insurance business. These valuations include those of a statutory nature in which case we work with the statutory actuary and perform the necessary calculations and reconciliations. We are able to combine our theoretical and practical knowledge with the technical aspects of valuation software in order to add value to the valuation process and meet deadlines.
It is important to analyse the experience of a company’s business periodically in order to identify trends and adjust premiums or prices in the event of adverse experience. The long-term nature of certain types of business means that the experience relating to the underlying parameters are in itself estimates.
SolveCo performs experience analyses on many types of business for various clients. We specialise in analysing the experience of Life, Disability and Health insurance business.
Risk and Statistical Analysis
The identification of risks is very important in any business. The extent to which such risks will have an impact on the financial wellbeing of the business can also be identified and in some cases models that monitor such risks can be implemented in order to manage them.
In light of the Solvency Assessment and Management (SAM) regime, companies will be obligated to construct a risk management model which will form part of their solvency requirements.
SolveCo uses various statistical techniques to quantify important aspects of business data and experience and we are proficient in analysing information and providing legible and informative feedback from it.
Marketing Material, Policy Documentation and Technical Specifications
Any product development requires documentation and marketing material. Examples of such materials include product brochures, policy documents, application forms, and technical specifications. Policy wording is important from a legal and risk management perspective. Regulation requires that policy information comply with certain minimum standards.
SolveCo understands the necessity of up to date and accurate documentation and can assist in the drafting thereof. We are able to ensure that policy documentation and system specifications are consistent, complete and up to date.
Actuaries are also involved in the determination of provisions that need to be held to meet future liabilities. Regular asset and liability valuations are required to demonstrate solvency to the regulator.
The timing and magnitude of expected future liabilities has to be aligned with asset proceeds. Since the timing of some future liabilities are not known in advance, asset-liability matching is necessary in order to safeguard a business against cash flow problems and the need for expensive finance to cover both known and unknown liabilities.
SolveCo is able to apply the modelling techniques necessary to construct investment strategies that ensure optimal alignment to a company’s liability profile.
True innovation requires in-depth current knowledge of the topic being investigated. Failure to obtain or recognise current knowledge could prevent new development and result in failure to fulfil true potential and capitulation to competitive pressures. Revolutionary visions should not be implemented hastily, but it is these insights that, if they are gradually fostered and nurtured into existence, that foster true growth.