I wrote out a nice long reply, and then Blogger lost it. Grrr.
I'm not a valuation actuary here, so I don't know all the ins and outs of the regulation.
But yes, this implies you need to calculate the liability for each policy. Under PPM (Policy Premium Method), this is what you are supposed to do. Singapore uses a form of PPM, with a zero floor, so in theory companies should be calculating a seriatim reserve. However I don't know what is done in practice. Theory and practical are not always the same.
In Canada, PPM used to be the reserve method, and companies did calculate reserves policy by policy. Now, CALM (Canadian Asset Liability Method) is used, which is an aggregate method. You take the liability cashflows for a block of business (say par policies) and then determine the amount of starting assets you need to have zero assets when the last liability drops off. The amount of starting assets needed is your liability. So a company would not be able to report how much a reserve is for a particular policy.
Tan Kin Lian's question is a good one. Jill's comment is a good one too -- except that insurers can come close to showing the fund's liability for each individual policy.
Insurers can show the "asset share" which is the policyholder's proportionate ownership in the fund. Knowing that would be extremely helpful and policyholders could compare it to their cash value (surrender value).
My view is that Mr. Tan assumes the world has the same high standards of integrity as him.
It is more likely, I think, that insurance companies do what it takes to maximise value for shareholders. Occasionally, integrity gets in the way of that goal, which presents a dilemma for them.
On the question of how to define "liability", I agree with Mr. Tan's definition.
But I don't think it obligates insurers. They will define the word in whatever non-standard way they want unless instructed otherwise by the regulator.
Mr. Tan's heart lies 100 per cent with the policyholders.
For the rest of the insurance industry, I think it is something less than that, especially when there is a conflict between stockholders' and policyholders' interests.
I doubt that Singapore insurers will ever voluntarily reveal the asset share of policyholders -- (but maybe I will be surprised).
Statement 1 is seriatim (i.e. policy by policy) reserves.
ReplyDeleteStatement 2 is aggregate reserves
At least, that's how I would read it.
Hi Jill
ReplyDeleteThe annual returns by life insurance company report that $X is thte sum of the liability in respect of each policy.
Does this imply that the life insurance company must compute the liability for each policy and add them up to get the total?
I wrote out a nice long reply, and then Blogger lost it. Grrr.
ReplyDeleteI'm not a valuation actuary here, so I don't know all the ins and outs of the regulation.
But yes, this implies you need to calculate the liability for each policy. Under PPM (Policy Premium Method), this is what you are supposed to do. Singapore uses a form of PPM, with a zero floor, so in theory companies should be calculating a seriatim reserve. However I don't know what is done in practice. Theory and practical are not always the same.
In Canada, PPM used to be the reserve method, and companies did calculate reserves policy by policy. Now, CALM (Canadian Asset Liability Method) is used, which is an aggregate method. You take the liability cashflows for a block of business (say par policies) and then determine the amount of starting assets you need to have zero assets when the last liability drops off. The amount of starting assets needed is your liability. So a company would not be able to report how much a reserve is for a particular policy.
And with that, I've bored everyone to tears. ;-)
This comment has been removed by the author.
ReplyDeleteHi --
ReplyDeleteTan Kin Lian's question is a good one. Jill's comment is a good one too -- except that insurers can come close to showing the fund's liability for each individual policy.
Insurers can show the "asset share" which is the policyholder's proportionate ownership in the fund. Knowing that would be extremely helpful and policyholders could compare it to their cash value (surrender value).
My view is that Mr. Tan assumes the world has the same high standards of integrity as him.
It is more likely, I think, that insurance companies do what it takes to maximise value for shareholders. Occasionally, integrity gets in the way of that goal, which presents a dilemma for them.
On the question of how to define "liability", I agree with Mr. Tan's definition.
But I don't think it obligates insurers. They will define the word in whatever non-standard way they want unless instructed otherwise by the regulator.
Mr. Tan's heart lies 100 per cent with the policyholders.
For the rest of the insurance industry, I think it is something less than that, especially when there is a conflict between stockholders' and policyholders' interests.
I doubt that Singapore insurers will ever voluntarily reveal the asset share of policyholders -- (but maybe I will be surprised).
Sincerely,
Larry Haverkamp
Hi Jill,
ReplyDeleteYou sound like a very clever girl.
I am impressed that you are taking on a giant.