Ch 14: General Assumptions

Question 1

General considerations when setting assumptions

Answer 1

• Consider the use to which the assumptions will be put
• Consider carefully choice of assumptions that will have the most financial significance
• Achieve consistency between various assumptions
• Consider legislative and regulatory restraints
• Consider the needs of the client
• Ensure parameters are derived from the data as accurately as possible
• Ensure data used to derive the assumptions are relevant to the risk that the policy covers
• Ensure that the basis used for periodic valuations and reserves are flexible to reflect changing risk circumstances

Question 2

How allowance for future adverse experience may be allowed for in cashflow models

Answer 2

• Apply margins to expected values
• Stochastic approach
• Risk element in risk discount rate

Question 3

The price ultimately charged and margins incorportaed will depend on factors such as:

Answer 3

• Competitive nature of the product
• Company’s USP (unique selling proposition
• Company’s attitude to risk or risk appetite
• Credibility, accuracy, relevance and up-to-date-ness pf the data
• Size of the company’s free assets or parental guarantee