Ch35: Monitoring experience

Question 1

Reasons for monitoring experience

Answer 1

• develop earned asset shares
• update assumptions as to future experience
• monitor any adverse trends in experience so as to take corrective actions
• provide management information

Question 2

Consistent data

Answer 2

• data we use should be in a similar form
• preferably extracted from the same source
• grouped according to the same criteria
• equal in terms of reliability

Question 3

Subdivision categories for persistency in order of importance

Answer 3

• type of contract
• duration in force
• sales method used and target market
• frequency and size of premium
• premium payment method
• original term of contract
• sex and age

Question 4

Expenses can be subdivided as follows

Answer 4

• expenses relating to new business
• expenses relating to existing business
• expenses relating to terminations
• expenses relating to investment management

Question 5

For each category, need to identify if expenses are

Answer 5

• proportionate to the premium payable
• proportionate to the benefit level
• fixed amounts per policy

Question 6

Main items of expense

Answer 6

• salary and salary-related costs
• property costs
• computer costs
• investment costs

Question 7

How to split “other” costs

Answer 7

• splitting them in proportion to the direct expenses already identified
• splitting them in proportion to the expense charges from the policies
• splitting them down in proportion to something else

Question 8

Expense investigation process

Answer 8

• pg1058

Question 9

Reasons for analysis of surplus

Answer 9

DNVRIM
- show the financial effect of divergences between the valuation assumptions and the actual experience
- show the financial effect of writing new business
- provide a check on the valuation process, if carried out independently
- identify non-recurring components of surplus, thus enabling appropriate decisions to be made about the distribution of surplus to with-profits policyholders
- give management information on trends in the experience of the company
- comply with regulatory requirements

Question 10

Reasons for analysis of EV profits

Answer 10

REVPM
- validate the calculations, assumptions and data used
- reconcile values for successive years
- provide management information
- provide data for use in executive remuneration schemes
- provide detailed information for publication in the company’s accounts

Question 11

What the company might change after analysis

Answer 11

• update the pricing basis
• revise product design
• change the product mix/launch new products
• revise underwriting processes
• revise reinsurance arrangements
• implementing or improving retention activity
• change marketing message. target market and/or distribution channel
• revise sales procedure
• improve wording of policy contracts
• improve adequacy of staffing resources
• improve systems and data recording processes
• improve actuarial models
• change the investment strategy
• change the with-profits surplus distribution approach
• update the reserving basis
• raise capital
• alter capital allocation methodology
• improve risk management governance and controls