Class Notes (834,387)
Canada (508,508)
MTHEL 131 (111)
David Kohler (106)

Lecture 4

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Mathematics Electives
David Kohler

Lesson 4 Assuris: non-profit organization under Canadian Federal regulation to protect policyholders in the event that a life insurer should become insolvent When The Old Equitable began pricing their policy (premiums), they considered: 1. Mortality 2. Investment returns 3. Expenses of the company * “Buffers” Company takes premiums and puts them into reserve. When a claim comes in money is taken out of reserve. Important question: given ages of all the insureds, and the sizes of their policies, how much should be in the reserve right now?  you don’t need total sum of potential claims in reserve because: - People aren’t going to die at the same time - Interest will be accumulated The Old Equitable had $2,000,000 in the reserve. Actuaries estimated that they only needed $1,000,000 to satisfy the claims  excess of $1 million Surpluses occur because of: - Overcharging on premiums - More interest earned than expected - Less people dying than expected - Expenses lower than expected Money belongs to policy-owners, so if reserve has excess, it’s necessary to give it back to policy-owners. Ways of giving it back: 1. Reduced premiums (P.R.O. – premium reduction option) 2. Cash (sending them a cheque) 3. Accumulation option (on deposit) – dividends would be deposited every year policy-owner can withdraw the money at any time 4. Additional coverage (P.U.A. – paid up additions) – you don’t have to pay for the additional coverage  the policy-owner chooses which way to receive excess When money is given back, it’s called experience dividend  based on experience with mortality, investments, expenses, etc  money is given back in the form of a dividend Participating policy (PAR policy): - If the policy-owner participates in any experience dividend - More expensive - Varying premiums - Varying benefits Non-PAR policy: - If the policy-owner does not participate in the distribution of any surplus. - Less expensive - Fixed premiums - Fixed benefits. Mutual Company: owned by participating policy owners  advantages: cannot be taken over  disadvantages: cannot raise funds Stock Company: owned by stock/share holders  advantages: you can raise money buy issuing more shares You can expand (to other countries, to different policies)  disadvantages: can be taken over by another company buying 51% of shares First 4 companies in Canada (mutual, Canada, sun-life, manu-life) wanted to change from mutual companies to stock companies. - Asked financial minister for permission To switch from mutual to stock (DEMUTUALIZATION): - Calculate value of company (assets) -- $2 BILLION  money is in the buildings/infrastructure - Calculate number of policy-holders -- 1 MILLION - Policy-holders become share-holders - Shares are distributed among PAR-policy holders depending on:  face value of their policy  how much they’ve paid in premiums  number of years they’ve b
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