Ch 13: Risk (1)

Question 1

Possible sources of risk: (17)

Answer 1

• Policy and other data
• Mortality and morbidity rates
• Investment performance
• Expenses including the effect of inflation
• Withdrawals
• Mix of new business by nature, size and source
• Volume of new business
• Guarantees and options
• Competition
• Actions of board or staff
• Actions of distributors
• Failure of appropriate management systems and controls
• Counterparties
• Legal, regulatory and fiscal developments
• Fraud
• Aggregation and consentrations of risk
• Climate risks

Question 2

Data risks (5)

Answer 2

• Inadequate, inaccurate or incomplete data could lead to incorrect results and recommendations
• Risk that model points chosen do not represent the underlying data well
• Risk that not enough data is available to be credible
• Risk that data is not appropriate for the use it is to be put (past experience not representative of future)
• Data source may be based on population not relevant for the use

Question 3

3 parts of withdrawal risk

Answer 3

• Financial risk that the surrender value is higher than the asset share at time of withdrawal.
• Risk to the mortality experience due to selective effect of withdrawals
• Risk of increasing per-policy expenses due to loss of business volume.