Chapter 20: Assumptions Flashcards
Considerations for when making assumptions in actuarial work
- U se for which those assumptions will be put.
- F inancial consequences of the assumptions T
- C onsistency between the assumptions
- L egislative or regulatory requirements
- N eeds of the client
- M argins (extent) against future adverse experience are required.
- R isk discount rate to be used.
- P rofit criterion to apply
Demographic vs economic assumptions
- Demographic affect timing and number of cashflows
- Economic: level of income or outgo
Considerations to make when working with past data
Credibility
* Change in the way the data has been recorded
* Random fluctuations
* Abnormal fluctuations
* Potential errors in the data
Relevance
Changes in:
* E xperience over time
* M ix of homogeneous groups within past data
* H omogenoues groups to which assumptions apply
Sources of the following considerations when working with data
Credibility
* Abnormal fluctuations and random fluctuations; and changes in the data
* Potential errors in the data
Relevance
* Heterogeneity
* Changes in the mix of homogeneous groups within past data
* Changes in the homogenous groups to which assumptions apply
Abnormal fluctuations and random fluctuations; and changes in the data
* Changes affecting economic data.
* Other economic adjustments - Dividends, tax
* One-off impacts - substantial; interest rate hikes and epidemics
* Price inflation.
* Demographic changes
Potential errors in the data
* Changes in the statistics recorded
* Errors in the data - especially older data due to systems of management and verification.
Heterogeneity
* Changes in the constituents of the population.
* Splitting the population into homogeneous groups
Features that increase the risk in product design
- Lack of historical data
- P olicyholder options
- O verhead costs
- U ntested market
- C omplexiy of design
- H igh guarantees
What profit criterion ratio should be the same for all product lines
NPV cashflows/Distribution costsv
