CH 35 (Monitoring Experience)

Question 1

Two Types of Experience Investigations

Answer 1

• Direct investigation
  (actual vs expected)
• Analysis of surplus
  (financial impact of any difference between actual and expected)

Question 2

Reasons to Monitor Experience

Answer 2

• Develop earned asset shares
• Update assumptions
  (feeding back into control cycle)
• Monitor adverse trends
  > corrective actions
  …pricing and adequacy of reserves
• Provide management information
  (focus on scope for profitability instead of adverse trends
  …products, channels, investments, efficient strategies)

Question 3

Investigated Factors

Answer 3

• Mortality
• Persistency
• Expenses

Question 4

Reasons for Analysing Surplus

Answer 4

-showing financial effect of Divergences between actual and expected experience
-provide management Information
-show how Variance of the surplus components is complete description of the whole
-give information on trends in Experience (#acc)
-Reconcile values for successive years
-Group into recurring/non-recurring components of surplus
-provide data for Executive remuneration schemes
-show financial effect of writing New business
-Check calculations and assumptions
-Extra check on valuation data and process (if done independently)
-Provider’s accounts

Question 5

Sources of Surplus

Answer 5

–Withdrawals/lapses
–Investment income + gains
–Mortality
–Morbidity
–Inflation
–New business levels
–Salary growth
–Expenses
–Commission
–Taxation
–Premiums/contributions
–Claim amounts

Question 6

Mortality Classifications

Answer 6

NB**
1. Contract type**
2. Age**
3. Sex**
4. Duration from entry**
5. Smoker status**
6. Medical status**
7. Source of business**

Peripheral
8. Location
9. Occupation

Question 7

Persistency Classifications

Answer 7

NB**
1. Type of contract**
2. Duration in force**
3. Sales method**

Secondary
4. Target market
5. Premium frequency
6. Premium size
7. Premium payment method
8. Original contract term
9. Gender
10. Age

Question 8

Factors Influencing Persistency

Answer 8

• Economic situation
• Competitive situation
• Perceived value of product

Question 9

Reasons for analysing a change in EV over year

Answer 9

1. Validating EV calculations
2. Reconciling EVs for successive years
3. providing MI
4. providing data for use in Executive remuneration schemes
5. providing detailed info for Published accounts
   (esp. for new business taken on by company)

V-PREM

Question 10

Actions following the results of a monitoring exercise

Answer 10

. change product Mix/launch new products
. revise Reinsurance arrangements
. improve adequacy of Staffing resources

. revise Sales procedures
. update Pricing basis
. revise Underwriting process
. revise product Design

. change Investment strategy
. improve Systems/data recording processes

. implement/improve Retention activity
. improve Actuarial models
. change with profits surplus Distribution approach

. update reserving Basis
. change Market message, target market/distribution channel
. improve policy contract Wording

. raise additional Capital
. alter capital Allocation methodology
. improve Risk management controls/governance

MRS SPUD IS RAD BMW CAR

Question 11

Process of monitoring

Answer 11

-Group data into homogenous groups
-Identify patterns in data +differences between actual and expected results
-use results to Revise models and assumptions
(based on PPP - CA1)
(+ use revised information to control the situation feedback into the cycle)

Question 12

Considerations for the homogeneous groups

Answer 12

-Volume of data
(credible vs homogeneous)
-potential Changes in the make up of the group
(heterogeneity within)
-group’s Risk factors

Question 13

Data patterns

Answer 13

-Trends
-Cycles
-Anomalies
-Random variation