ASOP 7 - Analysis of Life, Health, or Prop/Causalty Insurer CF

Question 1

Purpose of CF analysis (7)

Answer 1

1. Reserve adequacy
2. Capital adequacy
3. Product dev or rate making studies
4. Evaluation of investment strategy
5. Fin proj or forecast
6. Actuarial appraisal
7. Testing of future benefits that may vary at discretion of the insurer (such as dividend scales)

Question 2

Situations where CF testing is needed (4)

Answer 2

1. Where there are material asset risks
2. Where there are liabilities that have CF far out into the future
3. Where company has a new or rapidly growing LOB
4. Where policyholder options are likely to result in antiselection

Question 3

Situations where CF testing is not needed (3)

Answer 3

1. Products with short term liabilities supported by short term assets
2. Business that is not sensitive to change in econ conditions or interest rates
3. If risk being eval is unanticipated sources of significant claims (ex. AIDs)

Question 4

CF analysis documentation required by actuarial standards (7)

Answer 4

1. Whether any prior analysis were relied on
2. Purpose of analysis and risks analyzed
3. Type of analysis performed (such as CF testing)
4. Result of analysis
5. Actuary’s conclusions or recommendations
6. Any conclusions or recommendations related to sensitivity testing
7. The data, assumptions, and methods used

Question 5

Considerations of insurer’s asset (5)

Answer 5

1. ) Sensitivity to economic factors such as interest rate and inflation.
2. ) limitations on ability to use asset CF to support liabilities.
3. ) Impact on CF associated with asset quality.
4. ) Cost of maintaining assets or converting into cash.
5. ) Any relevant historical experience of similar assets.

Question 6

Considerations when projecting policy cash flow (4)

Answer 6

1. ) Insolvency risk
2. ) Effect of external factors such as interest rates.
3. ) Policyholder options that may affect CF
4. ) Effect of rate changes