Chapter 17 - Assumptions (4) - Other assumptions

Question 1

By what factors do the mix of new business differ

Answer 1

• Average policy size
• Gender
• Occupation
• the split of new business by:
  – Product
  – Distribution channel
  – Territory

Question 2

What does the beta of the CAPM model measure

Answer 2

It is a measure of the riskiness of the asset relative to that of the market

Question 3

What features can make a product design riskier

Answer 3

L POUCH

• Lack of historical data
• Policyholder options
• Overhead costs
• Untested market
• Complexity of design
• High guarantees

Question 4

How can the level of statistical risk in cashflows be measured

Answer 4

• Analytically, by considering the variances of the individual parameter values used
• Sensitivity analysis, with deterministically assessed variations in the parameter values
• Stochastic models for some, or all, of the parameter values and simulation
• By comparison with any available market data

Question 5

What is the risk discount rate equal to

Answer 5

Risk-free rate + risk premium

Question 6

Assumptions may be needed for the mix of business by

Answer 6

HOT PANDA

• HEALTH status
• OCCUPATION, socio-economic status
• TERRITORY
• PRODUCT type
• AVERAGE policy size
• NEW and renewal business
• DISTRIBUTION channel
• AGE and gender