39. Monitoring

Question 1

Give three reasons why experience is monitored

Answer 1

• Update method and assumptions=> reflect expected future experience more accurately
• Monitor trends in experience=> corrective action taken
• Provide information to management and key stakeholders
• Key part of ACC

Question 2

What is the broad data requirement for monitoring?

Answer 2

• Reasonable volume of stable, consistent data=> future experience and trends can be deduced
• Data can be divided into homogeneous risk groups
• Sufficient quantity in each group to maintain credibility
• When assessing decrements (e.g. withdrawal rates) => Data required on both Risk event and Exposed to risk
• Consistency between the two

Question 3

How should demographic factors such as mortality be monitored?

Answer 3

• Each age band => calc # of deaths/# exposed to risk of death
• Compare with existing assumptions (std table) to identify differences
• Compare with other relevant std tables to determine if they fit better

Question 4

How should economic factors such as investment returns and interest rates be monitored?

Answer 4

• Compare actual returns or rates vs assumed

Question 5

Why should results of monitoring not be utilised blindly?

Answer 5

• Period under investigation not typical=> Not representative results of future experience
• Experience under investigation affected by:
• Abnormal events
• Significant random fluctuations
• Economic cycles
• Trends in experience e.g. in mortality
• Heterogeneity in the data used and the groups to which it will apply

Question 6

How to deal with the above abnormities?

Answer 6

• Adjust the data for the factors
• Create margins in the assumptions o Allow for data and modelling risk