Asset share method

[MarsLasar]

In GH-D105-07 direct marketed products are priced using an "asset share method."

Anyone know what an asset share method is?

[neverending]

what page is this on in the study note?

I'm wondering if this is related to the asset share model question that was asked on last year's exam...I've always been wondering where that question came from.

I think the asset share method was talked about in FAP as well, and I want to say it came from the P&C ratemaking text, but I'm not 100% certain.

[MarsLasar]

what page is this on in the study note?


MATE card 46 says it's on page 4. (Looks like it is the first sentence)

[Julietn528]

yes, we use asset shares a lot where I work

This is addressed on Chapter 5, page 152, bottom of the page.
I think it is mainly for individual insurance.

I use them alot by I don't exactly know how to describe it. You basically have "cells" like a projection model for example you model issue age bands/sex and then load each assumption into your for the appropriate cell. So your assumptions (lapse rates,expenses) etc would vary by issue age/sex (or however you decide to define your model cells). Then you can print out your results by each age and get your profits by your modeling bands, etc. It is basically a policyholders contribution to assets.

The reason it is usually used more for individual is that individual is not Annually Renewable Term like Group. So Group you only need to come up with claim costs for one year, so you can just load the claim costs for expenses and get your premium for the year. In individual you have issue age premiums, so you need to come up with a rate that will hold over many durations. Asset shares take durations into account. So if you are selling LTC/Med Supp Issue Age you would use an asset share. Also, if you had major medical and you had a waiting period for some of your benefits you would also need to model this using a durational model. You would also use an asset share for this as well.

Perhaps if you read the definition, you can ask me questions, and I can explain it to you like that. Does that work?

[Julietn528]

I should also add that Group you usually charge one premium or pool claims, in individual there is less subsidy among ages (or at least that is the desire) so it is helpful to run an asset share to see if each "cell" meets your profit criteria. Some states, like FL actually insist that every ages meets certain profit criteria. In this case, the insurance company is exposed to much less distribution risk. Now group this is less of an issue b/c the insurance carrier insists that the group has actively at work requirements and meets certain participation minimums plus the law of large number is on your side. With individual, you have less of a guarantee on which ages you are going to get, so you need to try and get them all to be profitable, while still having competitive rates. Does this make sense?

[MarsLasar]

yes, we use asset shares a lot where I work

This is addressed on Chapter 5, page 152, bottom of the page.
I think it is mainly for individual insurance.

I use them alot by I don't exactly know how to describe it. You basically have "cells" like a projection model for example you model issue age bands/sex and then load each assumption into your for the appropriate cell. So your assumptions (lapse rates,expenses) etc would vary by issue age/sex (or however you decide to define your model cells). Then you can print out your results by each age and get your profits by your modeling bands, etc. It is basically a policyholders contribution to assets.

The reason it is usually used more for individual is that individual is not Annually Renewable Term like Group. So Group you only need to come up with claim costs for one year, so you can just load the claim costs for expenses and get your premium for the year. In individual you have issue age premiums, so you need to come up with a rate that will hold over many durations. Asset shares take durations into account. So if you are selling LTC/Med Supp Issue Age you would use an asset share. Also, if you had major medical and you had a waiting period for some of your benefits you would also need to model this using a durational model. You would also use an asset share for this as well.

Perhaps if you read the definition, you can ask me questions, and I can explain it to you like that. Does that work?

OK, this makes a lot of sense.

So the "Asset" part of the method has to do with the assets backing the individual policy liabilities - does that sound right?

I'm having problems understanding what the method had to do with assets. Maybe this is the connection I'm missing.

[Julietn528]

OK, this makes a lot of sense.

So the "Asset" part of the method has to do with the assets backing the individual policy liabilities - does that sound right?

I'm having problems understanding what the method had to do with assets. Maybe this is the connection I'm missing.

That's what I get from the definition. I have always been a little bit confused about the terminology. Like I could go ahead and put together an asset share for you, but I can't conceptually describe it very well. I will ask one of my bosses and then post what he/she says. It may take me a day or so to get back to you.

[MarsLasar]

Thanks, you've already been very helpful!