PRICING, RESERVING AND PROFIT TESTING OF THE ‘UPUPHIGH’ LIFE INSURANCE PRODUCT

This internship report documents my work at Product Actuarial Department of Guofu life insurance company, where I was asked to build a new pricing model and Excel templates of profit test for a newly-launched whole life insurance product named “UpUphigh”. Aligned with the roles of the Product Actuarial Department, the objectives of the internship, under the framework of actuarial report for “UpUphigh”, see Guofu Life Insurance Co., Ltd. (2024. 2024a), were set as: (i) calculation of premiums; (ii) calculation of cash values at the end of each policy year; (iii) calculation of statutory unearned premium reserves (statutory UPR) and related reserves; (iv) validation of the accuracy of the developed pricing model by comparing it to the internal model provided by the company; (v) building Excel templates of profit test into the developed pricing model, after analyzing profit testing procedures in the internal model. The calculation of premiums, cash values and reserves were limited to the regulation for general life insurance under China Insurance Regulation Commission (CIRC). The calculation of cash flows and profit test indicators should conform to Solvency II regime. It must be noted that Guofu Life Insurance Co., Ltd. (2024. 2024a) are the main references, used throughout the whole work. The work was strongly based on Excel, requiring us to build many sheets corresponding to the different layers of the pricing model, following the assumptions and formulas provided in the actuarial report. Also, it was necessary to create some VBA codes to organize every critical data into a whole sheet so that it was possible to make an efficient comparison with the critical data included in the internal model. It must be noted that profit testing is much more challenging than calculating premiums and reserves, as it requires parameters to be listed by every policy month rather than every policy year. Further, the calculation of profit test indicators like minimum capital requirement (total risk) (MC) involves matrix computation due to the fact that all types of risks should be considered and there are correlations between each pair of risks. This also makes profit testing a more complex task. Overall, the development of our pricing model for “UpUphigh” is successful as its accuracy, simplicity and interpretability have been verified.