ASOP 22 - Statement of Opinions Based on Asset Adequacy

Question 1

Methods used for asset adequacy analysis (6)

Answer 1

1. CF testing - appropriate where CF of existing assets and liability may vary under different economic or interest rate scenarios
2. Gross premium reserve test - may be appropriate where the policy and other liability CF are sensitive to moderately adverse deviations in the actuarial assumption
3. Demonstration of extreme conservatism - when degree of conservatism in the liab is so great that moderately adverse deviations are covered, then a demonstration of this conservatism is sufficient.
4. Demo that risks not subject to material variation
5. Risk theory techniques - for products with short-term liabilities supported by short term assets, it may be more appropriate to measure moderately adverse deviations using risk theory techniques
6. LR methods - appropriate when CFs are short term

Question 2

Accepted methods of selecting appropriate assumptions (3)

Answer 2

1. ) Adaptation of company experience or industry study
2. ) Use of deterministic scenario or set of scenarios
3. ) Statistical distribution or stochastic methods