17. Assumptions (4) - Other assumptions

Question 1

New business assumptions

Answer 1

• new business volumes
• new business mix
• determination of the risk discount rate

Question 2

Risk discount rate

Answer 2

RDR should reflect
- return required by company shareholders (assessed using CAPM)
- level of statistical risk attaching to the cashflows under consideration (product-specific risk)

Factors affecting product-specific risk
- lack of historical data
- high guarantees
- policyholder options
- overhead costs
- complexity of design
- untested market

Statistical risk may be analysed
- analytically (variance of individual parameters used)
- sensitivity analysis (deterministically assessed variations in parameter values)
- stochastic modelling
- comparison with market data