"Policy Year Results" are one of the two most important reports that an AXIS Cell will produce (the other is "Calendar Year Projections"). Policy Year Results are available from every module, even the Asset and Reinvestment Modules, which don't normally relate to "policies".
The Policy Year Results report is used to display the basic elements of the cash flows generated by the Cell on a policy year basis - that is, starting from the assumed issue date of a policy (or asset) described by the Cell, and annually thereafter, from policy anniversary to anniversary, until the expiry or maturity of the contract.
In insurance and annuity Cells, the total net annual cash flows are further adjusted by investment income, increase in reserves and income taxes to produce annual book profits. These are further adjusted by the required surplus impact to develop the net annual Contribution to Free Surplus (CTFS). AXIS also uses the cash flows, book profits and CTFS results to calculate a variety of profit measures for the plan description, risk class and assumptions defined by the Cell.
All these annual components of CTFS and profit measures are developed for a single policy issued at a specified point in time for each of up to 100 product ages that may run in one pricing run in a Cell, and the results can be viewed one product age at a time or as a weighted blend of all ages.
The Policy Year Results can also be scaled to various issue amounts (e.g. one policy, one unit of $1000 nominal face amount, $1,000,000 in total issued face amount, or $1000 in first year premium in the Regular Life module), and can be projected so that each renewal year's results are either based on the selected issue amount (i.e. ignoring the effect of survivorship to that point) or discounted by survivorship.
The Policy Year Results have two main purposes:
The generated book profits, CTFS and measures of profitability are used in product development, reinsurance quotation or portfolio review to make decisions about the proposed plan features or premiums.
The book profits and more importantly the key elements of cash flows and the reserves can be used to validate the reasonableness and accuracy of the cell assumptions as part of the process of creating cells that will be used for business models, valuation functions and other corporate applications.
The Policy Year Results must relate to only one issue point in time since some assumptions which affect profit may be dependent on the calendar date at which various events occur (e.g. maintenance expenses may be increased by inflation that is calendar year related). To study and compare the profitability measures of the same plan and risk class at various issue points will require rerunning the cell several times or using multiple cells that each specify a different assumed Pricing Issue Year and Month.
The Policy Year Results report allocates calculated values only by policy years, not by real financial reporting periods (e.g. calendar years or quarters). Since Policy Year Results relate only to one issue point and are based on one policy or other unit of issue, they also do not reflect the weighting of actual in force volumes (or expected future sales volumes) for the cell. For volume weighted results allocated by real financial reporting periods, you must look to the second major report, the Calendar Year Projections.
Finally, since Policy Year Results are not volume weighted nor calendar year based, the unadjusted consolidation of these results across multiple cells has no purpose, and thus Policy Year Results (unlike Calendar Year Projections) are not saved with the Cell for later use.
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