19. Setting Assumptions

Question 1

Name 4 considerations when setting assumptions

Answer 1

• How they’ll be used
• Client needs
• Consistency between assumptions
• Legislation

Question 2

Which assumptions should be given the most attention?

Answer 2

Those with most financial significance

Question 3

Name the 2 types of assumption

Answer 3

Demographic
Economic

Question 4

Give an example of a demographic assumption

Answer 4

Mortality rate

Question 5

Give an example of an economic assumption

Answer 5

Investment return

Question 6

What 2 types of data are used for setting assumptions

Answer 6

Historical data
Current data

Question 7

How can you get a market view of future inflation?

Answer 7

Using the relationship between current yield for fixed-interest & index-linked bonds

Question 8

Name 5 reasons historic information usefulness may be limited

Answer 8

• Credibility
• Relevance
• Fluctuations over time
• Inflation
• Data recording methods
• Heterogeneity

Question 9

What do you need to be careful of when using past data?

Answer 9

That it doesn’t necessarily provide a view of future experience

Question 10

Why is past data not necessarily relevant to future experience?

Answer 10

Social & economic conditions change over time