At Home – Contract Pricing Analysis

The actuarial pricing analysis will develop, using insurance industry standards, the expected financial position based on the demographics and contractual guarantees including healthcare and membership fee refundability. In developing actuarially based fee structures, it is important in this type of analysis to compare these fees to the current marketplace.

The pricing structure analysis will evaluate for single males, single females and couples the entrance and monthly fees compared to the expected future liability for providing care to prospective members under the current contracts. The pricing analysis is prepared by age and gender. The projected surplus is calculated as the difference between the present value of the fees charged less the present value of services provided. Expenses are allocated to each level of care: in home assisted living and skilled nursing by the nature of each expense.

The actuarial pricing methodology is based on developing the present value of contractual revenues, offset by the present value of contractual expenses, for each member. The difference between contingent revenues and contractual expenses is the expected contractual surplus at the time of membership. The methodology is based on the expected cash flows associated with the members contract. Accordingly, the calculation includes only expected cash flows and ignores non-cash items such as depreciation and amortization. In the calculation, depreciation is primarily replaced by an actuarial charge to fund the replacement of capital assets depleted during the members contract.

This analysis will provide management with the tools and understanding to move forward in the possible repricing of contracts, as determined by the actuarial analysis and constrained by market pressures.

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