Ch 20: Assumptions

Question 1

Name the 5 key considerations when setting assumptions.

Answer 1

1) The use to which the model will be put
2) The financial significance of the assumption
3) Consistency between assumptions
4) Legislative and regulatory requirements
5) The needs of the client

Question 2

When working with historical data the actuary needs to make considerations and adjustments. Name these considerations.

Answer 2

The considerations include:
> Abnormal fluctuations (one-off impacts)
> Change in experience over time
> Random fluctuations
> Changes in the way in which the data is recorded
> Potential errors in the data
> Changes in the mix of homogeneous groups within the data
> Changes in the mix of homogeneous groups to which the assumptions apply.

Question 3

Name the sources from which data can be obtained.

Answer 3

The sources include:
> internal data
> industry data
> actuarial tables
> reinsurers’ data

Question 4

Name features that can make contract design much riskier.

Answer 4

These features include
> lack of historical data
> high guarantees
> overhead costs
> policyholder options
> complexity of design
> untested market