Ch13: Risk (1)

Question 1

Data issues for health and care policies

Answer 1

• smaller policy volumes (CI and LTCI) and lower incidence rates (IP and CI) limits the credibility of the data
• changes to products and markets over time
• heterogeneity of products and markets limits the applicability of industry data

Question 2

Three risks associated with mortality assumptions

Answer 2

1. model risk
   - risk that the model, typically a probability distribution, chosen to represent future mortality may not be appropriate
2. parameter risk
   - risk that parameters used within the model may not adequately reflect the future experience of the class of lives insured or to be insured
3. random fluctuation
   - risk that actual future experience may not correspond with the model and parameters adopted, even though these adequately reflect the class of lives insured or to be insured

Question 3

“Expense risk” for linked business can take one of three classifications

Answer 3

1. investment performance risk
2. persistency risk
3. new business mix or volume risk (to the extent that charges are linked to average size or volume of new business)