Insurance Revenue Account & Profit Modelling is the intermediate level course for “Cash Flow Modelling on Spreadsheet” series, which aims to provide more in-depth understanding on how we can model insurance cash flows on spreadsheets – particularly commission, expenses, reserves, taxation and profits. This course also introduces techniques used to setup a cash flow model that can be used for sensitivity and stress testing, by incorporating shocks on assumptions used.
This course is organized using “building-block” approach, starting with recapping concepts and techniques from beginning level course Introduction to Cash Flow Modelling and setup calculations for commission and expenses that are not covered previously. Course Participants then learn the techniques used to manage assumptions, by incorporating sensitivity factors in both projection and valuation cash flows. Furthermore, they continue to learn to calculate reserves under different reserving basis, before setting up a projected revenue account used to calculate profits and respective actuarial present values.
Through this solving-based course, the Course Participants will learn techniques that are useful and relevant to their daily work, as the problems presented during this course are simulated from the real-life actuarial works of an insurance company.
This course is suitable to Course Participants who have attended beginning level course Introduction to Cash Flow Modelling or equipped with equivalent skills & knowledge.
Course Level: Intermediate
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: How to Calculate Commissions & Expenses?
This Chapter starts with recapping the concepts of technique covered in the beginner level courser Introduction to Cash Flow Modelling, which include movement of policies and premium income, claim outgo, investment income and benefit reserves calculations. By using the same cash flow model, Course Participants learn to include additional calculations on commissions and expenses:
- Commissions – Vary by distribution channel and policy years.
- Expenses – Expense assumptions comprise 3 major components, i.e. per policy, per 1,000 sum assured and % of premium.
Course Participants are recommended to access to Lesson 1 of Chapter 1 in advance, before the start of the 1st online class.
Chapter 2: How to Manage Assumptions?
This Chapter explains techniques used to derive projection assumptions from standard mortality and morbidity tables. These techniques reduce the efforts needed to deriving mortality and morbidity rates, by only defining % to be applied on the standard tables.
Under this Chapter, Course Participants learns a new concept that is crucial in actuarial modelling, i.e. how we differentiate and use projection cash flow and valuation cash flow. To calculate these two cash flows separately, this Chapter further explains the techniques used to setup sensitivity factors / shock factors that are applied on the assumptions used to generate the above-mentioned cash flows.
On the other hand, Course Participants learns another approach in calculating claim outgo by using loss ratio method.
Chapter 3: How to Calculate Reserves under Different Basis?
This Chapter explains techniques used to calculate reserves using gross premium valuation (“GPV”) basis and unearned premium reserve (“UPR”) basis. Different from benefit reserves covered in the beginner level course, we use valuation cash flows to calculate reserves, by considering same cash flow components as per the projection cash flows.
For products that use UPR as the reserving basis, Course Participants learn the overall concept of short term reserving, as well as how UPR is associated with another type of reserves commonly found in general insurance, i.e. incurred but not reported (“IBNR”) reserves.
Chapter 4: How to Calculate Profit & Its APV?
In the last chapter of this Course, Course Participants learn how to calculate taxation and profit of an insurance fund, which they will use to construct a simplified insurance revenue account – which is consistent to how Finance Department presents insurance cash flows in the financial statements.
In addition, this Chapter also introduces the overall concept of embedded values (“EV”) and (“VNB”) that involve calculating APV of future profits.
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