Life Insurance: Other Components of Profit

This chapter explains the components of profit for life insurance products. The components of profit are four: demographics, financial, surrender and expense loadings. Regarding the realistic assumptions for expected mortality and the expected rate of interest, the actuarial equilibrium is demonstrated by the Kanner equation. In the following paragraph, the Homans formula is analysed in detail. This equation breaks down the insurance profit into demographic profit and financial profit. Then the reader can learn the factors underlying profit for surrender and expense loading. In the chapter, a numerical demonstration is offered for ease in comprehending the mix and the importance of each component in forming expected profit. Several graphs are presented to increase the reader’s understanding. At the end of the chapter, the concept and formula of the profit margin are explained. The profit margin is a measurement tool for the expected profit from a life insurance product, typically a newly issued one.