View Full Version : Participating Life Ins Dividends
11-18-2003, 01:03 PM
I've read in ASOP 15 that you're supposed to use the Contribution Principle to determine dividends, with a few allowable restrictions. Is that also true when you're pricing a new participating product?
I thought dividends might be one of the things actuaries vary to achieve certain profitability/performance/etc. measures during pricing, and so honoring the Contrib Prin might limit that ability.
Could I design a rather unusual-looking set of dividends in a new policy form and then use the Contrib Prin for later after-issue dividend scale changes?
11-18-2003, 06:01 PM
ASOP 15 applies to all dividend scales, including the initial one. You'll have to be creative elsewhere.
11-20-2003, 09:08 AM
I think you are alomst there. The dividend scale at pricing is set only to achieve the company's profit target for the product. As the company's aggregate experience on all products comes in higher or lower than planned, the dividend scales on all products are changed in proportion to their excess accumulated profits or shortfalls.
Double High C
11-20-2003, 05:55 PM
I am not a dividend actuary (nor a pricing actuary), but ...
The Contribution Principle must be followed. (The definition of it is subject to interpretation, of course.)
It should not be the intent of the company to change the dividend formula one way or the other; of course, everyone knows that it will change, but the expected value of the change (at any point) should theoretically (and for the most part, in reality) should be zero.
If the dividend scale is set up at issue with a strange pattern (whether or not it violates the Contribution Principle), but with the intent of changing this pattern (whether or not the intended future result violates the Contribution Principle), it seems to me that the principles of fairness / (w.r.t. honesty in disclosure) underlying the Illustration Regulation are being violated.
Furthermore, whether or not company plans on providing Illustrations (to prospective new policyholders), using a strange dividend scale for the purpose of meeting pricing targets with the intent of reshaping them later, then it seems that the company (or the pricing actuary) is lying to itself.
But I admit that it is certainly possible that I am not fully understanding the original proposal in this thread.
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