Sensitivity Tests Required V0

Sensitivity Tests Sensitivity tests serve four main purposes: 1. Understand profitability 2. Assistance with product design 3. Establish competitive position and value 4. To provide a comprehensive set of results demonstrating the impact of changes in assumed experience The following details the required sensitivity to be completed and included as part of the Pricing Document. 1.

Allocation rate The following (design) sensitivity tests need to be included: a. Agent & staff cases allocation rate: Suggested change is the reduced commission allows an increased allocation rate less 5% in first year b. Large Cases: Scale needs to be determined The following (competitive) sensitivity tests need to be included:  As per AIA with associated AIA surrender penalty scale  As per ACE with associated ACE surrender penalty scale

2.

Surrender Penalty Scales The following (competitive and design) sensitivity tests need to be included:  As per ACE  As per AIA  As per Prudential  Scale required matching traditional product i.e. 10 year i.e. same sum assured and same premium 15 year 20 year Whole of life product The following (design and profitability) sensitivity tests need to be included:  Revised surrender penalty scale is to ensure IRR is 20%, 25% for minimum cases  Staff cases: Suggest use lower surrender scale (Range need to be determined)  Large premium cases use lower surrender scale (Range needs to be determined)

3.

Monthly Policy Fee The following (design and profitability) sensitivity tests need to be included:  No monthly policy fee  No monthly policy fee for annual premium 10m or above  Assume no increase in future policy fee  Inflation rate on fee is half that experienced i.e. 3.5%

Sensitivity Test for Universal Life Products

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4.

Investment Management Fee The following (design and profitability) sensitivity tests need to be included:  Investment management fee is 1%, 1.5% or 3%  Investment management fee is 2% for first ten years and then 1% after ten years, or 1.5% after ten years

5.

Mortality Rates The following (design and competitive) sensitivity tests need to be included for mortality rate charged:  Use experience plus margin of 25%  Use ACE mortality scale  Use AIA mortality scale The following (profitability) sensitivity tests need to be included for mortality rate charged:  Increase in experience by 100% , 200% and no change in rates charged clients  Decrease in experience by 20% and no change in rates charged to cleints

6.

Switch and Partial Surrender For simplicity not currently included in profit testing. This is conservative. Longer term we need to add these items and allow for cost of transaction and charge to included. Cannot be ignored for Unit Linked Products!

7.

Lapse Rates The following (design, competitive and profitability) sensitivity tests need to be included:  High monthly lapse rates  Using traditional product lapse rates  No lapse rates  Use low followed by high i.e. 0% for first six years and then 10% thereafter  Assume large jump to 50% / 100% surrenders after surrender penalty period ended  Assume when fund = total premiums paid large jump in surrender to 50% / 100% surrenders

8.

TPD experience The following (profitability) sensitivity tests need to be included:  Experience is additional 100% & 200% of loading  50%, 100% and 200% increase in experience

9.

Actual Investment Expense The following (profitability) sensitivity tests need to assume actual expenses are 30bps, 50bps and 150bps (assumed 100bps)

10.

Actual Expenses

Sensitivity Test for Universal Life Products

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The following (design, competitive and profitability) sensitivity tests need to be included: Initial expenses: Increase of 50%, 100% & 200% Decrease of 10% Renewal expenses: Increase of 50%, 100% & 200% As per traditional products Assume inflation rate or 10% & 15% 11.

Earned rate and credited rate The following (design, competitive and profitability) sensitivity tests need to be included:  Assume no difference between earned rate and crediting rate but loyalty payment maintained  Loyalty payment is 2.5%, 2% of AV after every 5 years  Interest rate of 7.5%, 8% and 11% are earned rate. Declared rate is less 0.5% to allow for loyalty bonus  Alternative loyalty bonuses sales as follows:  5% in10 years and 2.5% per every five years thereafter (for both Endowment and Whole of life)

12.

Valuation basis The following (profitability) sensitivity tests need to be included:  Valuation basis is maximum of (surrender value plus loyalty bonus, fund) with solvency margin in addition or portion included in fund  Valuation basis is maximum of (Policy Account Value plus loyalty bonus, fund) with solvency margin in addition or portion included in fund.

13.

Partial withdrawal and Premium Reduction pattern Ignore partial withdraws as can be allowed as part of increase in completed surrenders. Sensitivity tests for premium reduction with no other change should be 3% p.a., 5% p.a. and 10% p.a. Due to relationship between partial withdrawals and premium reductions. As premium reductions and surrenders are linked sensitivity tests combining change in both surrender pattern and premium reductions should be performed.

14.

Premium Holidays Ignore partial withdraws as can be allowed as part of increase in completed surrenders.

15.

Maximum sum assured and minimum premium Results for profitability of different levels should be included. (Details already supplied.)

16.

Solvency margin

Sensitivity Test for Universal Life Products

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The following (profitability) sensitivity tests need to be included:  Solvency margin is the minimum as described under legislation increased by 50%, 100%.  No solvency margin 17.

Stochastic results for the Guaranteed

The results of the cost and impact of the guarantees should be included here.

Sensitivity Test for Universal Life Products

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