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Contract design (2) (Items covered by expenses charges of an insurance…
Contract design (2)
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Cross-subsidies
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e.g. if charges on a unit-linked contract are a fixed proportion of fund size, e.f. a fund management charge of 1% p.a. then larger policies are likely to contribute more to profit and overheads than smaller policies
Mix of business written becomes important. If actual mix is different to expected, profits may be higher/ lower than expected