# Dynamic Underwriting Reserves

The main constituent parts of the underwriting model are the reserves, the Base Benefit Multiplier (B.BM), the Dynamic Reserve Ratio, the Benefit Multiplier Adjuster (BM.A), the Surplus, and the Membership Credits. In addition, the model is designed to allow participants to choose either their contributions or their claim benefit amounts, within set parameters. 

| Base Benefit Multiplier (B.BM)     | Set based on individual risk (such as age and gender)                                                                               |
| ---------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------- |
| Benefit Multiplier Adjuster (BM.A) | A ratio (%) calculated at each cash flow event based on portfolio/fund risk to ensure fund solvency and minimal benefit fluctuation |
| Dynamic Reserve Ratio              | Auto-adjusting ratio that seeks the optimal amount of reserves to ensure fund solvency                                              |
| Surplus                            | The amount of excess funds in the fund that can be redistributed to the members.                                                    |
| Membership Credits                 | Determines the members’ ownership of the fund and the value of the surplus that each member is eligible to redeem.                  |

The model uses 2 reserve types, the Benefits Reserve and the Fund Reserve. Each member’s contribution, after the protocol fee is deducted, is divided over these 2 reserves. The Benefits Reserve is sized to be able to cover expected payouts, meaning that if the future payouts frequency and severity is exactly in line with projections, the Benefits Reserve would be fully used to pay out the benefits. The Fund Reserve is the reserve to protect the fund from unforeseen payouts, meaning payouts in excess of projections.

When a new member joins, the algorithm calculates their Base Benefit Multiplier (B.BM). Using the participant’s characteristics including age, gender, underwriting questionnaire input regarding health impacting factors, and location; the model shows the participant the maximum B.BM applicable in the event of a benefit payout. This B.BM remains unchanged for the duration of membership of the participant. The participant, when joining, can choose their contribution and in turn their benefit payout, depending on their preference. At fund inception, the maximum benefit payout will be capped at the equivalent of $150,000.

The fund can only use its own money to pay out benefits. To protect the fund from running out of money, the algorithm computes the Benefit Multiplier Adjuster (BM.A) at each cash flow event, meaning whenever payments are made or received. The BM.A is a number between 0 and 1, and used to calculate the benefit:

<table data-header-hidden><thead><tr><th></th><th width="67"></th><th></th><th width="64"></th><th></th><th width="76"></th><th></th></tr></thead><tbody><tr><td>Benefit (payout)</td><td>=</td><td>Base Benefit Multiplier (B.BM)</td><td>x</td><td>Benefit Multiplier Adjuster (BM.A)</td><td>x</td><td>Individual Annual Contribution </td></tr></tbody></table>


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