Robert G. Chadburn
Abstract
Management decisions of a mutual life company involving the amounts and relative proportions of participating (with profits) and nonparticipating (without profits) business and the level of expenses are examined in relation to their effect on participating policyholders’ returns. A particular expense ratio is defined that plays a key role in a framework for making such decisions. The sensitivity of participating policy returns to changes in each factor are analyzed. Companies with expense ratios (as defined) of less than 2 are shown to prefer a different strategy from companies with higher ratios. There is an incomplete tendency for the ratio to stabilize either at unity or to tend to infinity. The practical implications and limitations of the approach are considered.
Key words and phrases: decision making; expenses; new business
R.G. Chadburn