XSI or XSE product?

[almost_there]

1.How do we determine whether a product is XSI or XSE ?

2. Is it sufficient to assume and state in an exam, without further justification, that savings products are XSI and protection products are XSE? (On this subject must we assume that savings products have no protection or that protection products have no savings, or assume that they're always a bit of both?)

3. Can't a product change from being XSI or XSE during its lifetime?

4. Also if a XSE company writes lots of XSI business will it quickly become XSI? Won't a company who's priced on an XSE or XSI basis have to re-price if company changes between XSE and XSI?

 

[Em Francis]

1.How do we determine whether a product is XSI or XSE ?

A company could be in an XSE position once BLAGAB expenses breach BLAGAB income.

However for a proprietary company, the BLAGAB I-E profit (adjusted for dividend income) would need to be compared with any profit arising from the minimum profits test. If the minimum profits test resulted in a higher profit, then the product would be an XSE product as the expenses would have to be adjusted so only those that made I-E equal to the minimum profits test would be allowed in the I-E calculation. The expenses adjustment would be carried forward to the following year.

2. Is it sufficient to assume and state in an exam, without further justification, that savings products are XSI and protection products are XSE? (On this subject must we assume that savings products have no protection or that protection products have no savings, or assume that they're always a bit of both?)

I would suggest stating that "A savings product is likely to be XSI, etc..."
Products that are mainly savings product may have an element of protection, eg unit linked contracts with death benefit guarantees, so no I wouldn't assume that savings products have no protection and vice versa.

3. Can't a product change from being XSI or XSE during its lifetime?

Yes

4. Also if a XSE company writes lots of XSI business will it quickly become XSI? Won't a company who's priced on an XSE or XSI basis have to re-price if company changes between XSE and XSI?

It will depend on how it manages its expenses. Writing lots of XSI business could definitely be a reason why a company becomes XSI from XSE.
Ideally a company will want to reflect its position in its pricing basis, however this will depend on the product design, competition, etc.

Hope this helps.

Thanks
Em