Introduction to Cash Flow Modelling aims to introduce underlying concepts of modelling insurance cash flows on spreadsheets, which helps to establish good foundations before exploring to more complex cash flow modelling, either on spreadsheets or actuarial software (such as Prophet).

This course is organized using “building-block” approach, starting with introducing overall concepts of cash flow modelling for life insurance products, including insurance cash flow components to be setup in a model – such as premium income, expenses and claim outgo. To ensure effective learning of underlying concepts and relevant techniques, this Course uses simplified term products and yearly projections in explaining how to calculate movement of policies (“MOP”), premium income, claim outgo, actuarial present values (“APV”) and benefit reserves on spreadsheets.

Through this solving-based course, the Course Participants will learn techniques used to setup simplified insurance cash flows, as well as considerations made in the calculations, such as reserves. Problems presented during this course are simulated from the real-life actuarial works of a life insurance company.

Course Level: Beginner
Target Audience: New actuarial entries / Junior & senior actuarial executives (1-3 years of experience) / Actuarial valuation team / Actuarial pricing team

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Course Outlines

Chapter 1: What is Cash Flow Modelling?
This Chapter covers the overall concepts of cash flow modelling on spreadsheets, including common components of policy and life assured profiles, such as policy term, premium term, gender, entry age. Furthermore, it also introduces the organized and systematic structure for a cash flow model that is used to populate policy year, attained age and other insurance cash flow components, such as premium income, claim outgo and expenses.

Chapter 2: How to Calculate MOP?
This Chapter explains how to calculate MOP, which serves as the foundation of insurance cash flows. It discusses various considerations in calculating MOP components, including structures of assumptions, selection effects on mortality rates and timing of applying lapse rates. Furthermore, it also relates the MOP components (e.g. no. of in force policies, no. of death, no. of lapse and no. of maturity) to the corresponding insurance cash flows components.

Chapter 3: How to Calculate Premium & Claims?
This Chapter explains how to calculate two key components of insurance cash flows, i.e. premium income and claim outgo. It demonstrates the approach calculating premium income for limited premium and non-level premium products, as well as calculating claim outgo using no. of death and loss ratios methods.

Chapter 4: How to Calculate APV & Benefit Reserves?
By using MOP and cash flows calculated in previous chapters, this Chapter explains how to calculate APV by discounting individual cash flows and hence benefit reserves. It demonstrates different approaches used to calculate APV and benefit reserves, including recursive method which is widely used in various actuarial modelling.

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