A model for pricing and profit evaluation of a unit linked insurance education assured savings plan

Abstract

This dissertation report gives details of an actuarial pricing and profit testing model for a seven year unit linked education assured savings plan designed for the Ugandan market. The proposed product allows parents to choose their desired education benefit based on expected school fees from which a sum assured is calculated. Regular contribution are then invested in a unit-linked fund and in the event of death, disability or maturity, the defined sum assured is payable. The product offers the benefit in the form of an annuity of the parents choosing; a quadrimestrial payment, paid three times a year in case of occurrence of unexpected events. The model uses key assumptions including a 16.4 risk discount rate, 3% inflation rate, 15.4% unit fund growth rate and 15% non-unit fund growth rate plus mortality and disability rates. It uses a 30 year old female and a quadrimestrial contribution of UGX 1,000,000 which gives a sum assured of UGX 12,113,801 as the base. These give rise to a premium of 910,068 annually. The results show that premiums vary with age and gender, with the male premiums being initially higher at younger ages but a crossover happening at between age 47 and 48 were female premiums increase more sharply. Profit testing shows that the product achieves profit margins of 5.7 to 5.8% for younger policy holders but falls to about 1% at age 65. Sensitivity analysis also shows that profitability is affected by changes in risk discount rate and expenses. This report therefore recommends that pricing should consider age related risk and expense loadings into pricing to improve the profitability of the product for older policy holders and maintain its long term viability.