Assumptions

Question 1

Main assumptions for any product

Answer 1

Business volume & mix
Policyholder distribution by category - main policyholder, dependant, child
Claims
Expenses
Tax rates
Profit margin
Risk discount rate
Capital cost
Reinsurance arrangements

Question 2

List 9 investigations to perform that would require assumptions about future experience

Answer 2

Profitability
pricing
reserving
capital requirements
resilience to adverse future experience
optimum reinsurance strategy
appropriate underwriting policy
asset-liability modelling
analysis of surplus
setting discontinuance terms

Question 3

factors to be considered in setting the terms and assumptions for an option

Answer 3

investment return assumptions should reflect the assets backing this option

allowance must be made for any guaranteed benefit increases

decide about the allowance to be made, if any, for discretionary increases

the aim may be for the exercise of the option to be financially neutral to the scheme

it is likely that fixed factors will be used that are not changed too frequently

any relevant legislation should be considered

consider to consistency of any new terms with those offered in the past