Ch 21: Setting Assumptions (1)

Question 1

Framework for setting assumptions

Answer 1

o Identify purpose of assumption
o Consider past experience data if available
o Consider conditions (economic, industry) that are expected to apply over period assumptions are for
o Set best estimate assumption and margin (discretionary, compulsory)
o Consider adjustments due to:
- Expert judgement
- Credibility of data/assumption
- Margin

Question 2

Assumptions used for pricing

Answer 2

RIMMB PINT CREW
o Reserving basis
o Investment return
o Mortality/morbidity
o Margins on BE assumptions
o Profit margin/profit criterion
o Bonus rates ( future bonus rates)
o Inflation (expense inflation, benefit inflation(e.g. for index-linked benefits), salary inflation)
o New business mix and volumes
o Tax
o Commission ( and commission clawback)
o Risk discount rate
o Expenses
o Withdrawal(persistency)

Question 3

Influences on withdrawal (lapses and surrenders) experience

Answer 3

o Distribution channel
o Economic conditions = f( ability to pay premiums, surrender benefit)
o Surrender benefit
o Surrender penalties

Question 4

Influences on IP claims experience

Answer 4

o Replacement ratios
o Rehabilitation benefits
o Government provision
o Economy
o Taxation
o Tightness of disability definitions

Question 5

Influences on CI claims experience

Answer 5

o Medical advancements that result in earlier diagnosis
o Tightness of CI definition