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PDP Presentation
- 1. My Presentation Topic Time Date Anantharaman Perumal :PDP : 1500 : 30-07-2015
- 2. Product Development Process (PDP) Product Development Process Astandardized stage-gate process for SLF BU’s in Asia to introduce a product Some preparation followed by 5 stages It ensures that BUs are compliant with and meets the objectives of the SLF Policies and Asia standards 2
- 3. Preparation for NewProduct • General Product Description • The amount of money payable • Type of coverage 3
- 4. Preparation for NewProduct •Mortality/ Morbidity rate •Lapse rate •Expense rate •Investment rate 4
- 5. Preparation for NewProduct • Modify the pricing model according to benefit and assumption 5
- 6. Profitability Testing Internal Rate ofReturn Profit Margin Value of New Business Breakeven Year Return on Equity New Business Strain 6
- 7. Profitability Testing Rate ofgrowth of the project To know the minimum rate of return for a project at time 0 : 1000 is paid out at time 1 : 200 is received at time 2 : 300 is received For NPV = 0, 1000 = 200v + 300v 2 where v = (1+i) 7
- 8. Profitability Testing Ratio ofprofits earned to total sales Measures how much out of every dollar of sales a company actually keeps in earnings Profit Margin = 𝑃𝑉 𝑜𝑓 𝑃𝑟𝑜𝑓𝑖𝑡 PV of 𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑒𝑚𝑖𝑢𝑚 8
- 9. Profitability Testing The presentvalue of book profits less the present value of the cost of capital How much value this new product is going to add to our business 𝑃𝑉 𝑜𝑓 𝑃𝑟𝑜𝑓𝑖𝑡 A𝐹𝑌𝑃 9
- 10. Profitability Testing The firstyear when the accumulated free surplus turns positive To know how long it is going to take before we can cover the cost of proving the product t, when the Accumulated Surplus becomes positive 10
- 11. Profitability Testing Ratio ofafter tax book profit to the investment To know how efficiently the company is using its resources 𝑃𝑉 𝑜𝑓 𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 NPV of 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝑟𝑒𝑞𝑢𝑖𝑟𝑒𝑑 11
- 12. Profitability Testing The straincreated due to inadequate premium amounts in initial years, which are not enough to cover for the expenses To understand that in insurance, the expenses are front ended whereas returns are realized over time 12 Net profit for 1st year Premium 𝑋 𝑃𝑎𝑦𝑚𝑒𝑛𝑡 𝑚𝑜𝑑𝑒
- 13. Sensitivity Testing • Howthe VNB and profit margin reacts to the changes in assumptions Scenario VNB (%AFYP) Change in VNB from base Profit Margin Change in profit margin from base Base Scenario 13.57% - 2.85% Sensitivities Pricing Interest Rate (PIR) + 1% from Base 14.13% 0.56% 2.66% -0.19% - 1% from Base 13.00% -0.57% 3.07% 0.22% Fund Growth Rate (FGR) + 1% from Base 14.18% 0.61% 3.10% 0.25% - 1% from Base 13.03% -0.54% 2.64% -0.21% 13
- 14. Premium Rate Table Premiumrate are given to Product team • Update the documents 14
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- 16. Stage 1: ProductProposal Product Proposal • Ensures that the proposal provides a solution to the needs of the distributors, the customers, and the company Preliminary Risk Assessment Model • Preliminary assessment of the probability and severity of risks • Mitigation strategies 16
- 17. Stage 2: ProductBuilding and Pricing Product Specifications • gives detailed product description, benefits and feature Product description Product benefits and features Distribution channel Premium structure and policy fees Commission structure Riders to be included, if any General New Business and Policy Administration rules Exclusions, Termination, and other policy terms, conditions and options Taxes, as applicable Detailed Underwriting Rules 17
- 18. Stage 2: ProductBuilding and Pricing Pricing Report • Describes the pricing in sufficient detail so that an competent actuary will be able to check if good practice was followed Executive Summary Product Description Rates Pricing Assumptions Financial Projection Assumptions Product Classification Valuation Basis, Capital Requirements & Core Assumptions Sheet Pricing Model Profit Testing Results Sensitivity Testing 18
- 19. Stage 2: ProductBuilding and Pricing FRAM IT Report Marketing Plan Implementation Plan Reinsurance Recommendation Documents to be submitted 19
- 20. Stage 3 :Peer Review and Opinion/Approval Reinsurance Approval Peer Review & Financial Opinion and Marketing Sign-off Approvals • Peer Review Report • Financial Opinion and Marketing Sign-off Report 20
- 21. Stage 4 :Implementation and Launch Final Marketing Materials CEO approval of product launch Functional Sign-off 21
- 22. Stage 4 :Implementation and Launch Functional Sign-off 22 Items Signed-Off by Administration & Peripheral Systems IT, Finance, Actuarial, Operations Illustration System – Regression Test IT Illustration System – Calculation Logic Actuarial Illustration System – Format layout, footnotes and wordings of the input screen and output Marketing Valuation System Valuation Actuary Sales Materials/Illustrations Legal, Compliance, Marketing, Product Management, Actuarial Product Design Product Management, Compliance, Marketing Policy Contract Legal, Compliance, Actuarial Investment Return Investments, Actuarial ALM Head of ALM Sales Projection Marketing, Channel Heads Underwriting/Claims Administration/Operations Guidelines Operations Risk Assessment & Management Actuarial, Risk Management, Compliance Reinsurance Chief Actuary, Chief Risk Officer, Legal Accounting – Local Statutory Reporting Finance Accounting – IGAAP Basis Finance, Regional Accounting and Control Treasury – Unit Pricing Treasury Compliance with Local Regulations Compliance, Actuarial, Legal Tax Assessment Finance Training Schedules and Materials Training Head, Compliance IT/Systems Actuarial, Finance, IT, Operations
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- 24. Stage 5 :Post-Launch Monitoring and Evaluation Quarterly New Business Profitability Review Quarterly Adjustable Product Report Quarterly Products with Guaranteed Report Monitoring of Action Key Items (Peer Review) 24
- 25. Summary 25 Preparation • Product Specification •Benefits • Assumptions • Profitability testing • Sensitivity Testing 5 Stages • Product Proposal • Product Building and Pricing • Peer Review and Opinion/Approval • Implementation and Launch • Post-Launch Monitoring and Evaluation
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