Chapter 20 - Setting Assumptions

Question 1

Assumptions

Answer 1

Use to which model will be put
Financial significance of the assumptions
Consistency between assumptions
Legislative and regulatory requirements 
Needs of client

Question 2

Historical and current data

How to deal with and make adjustments for

Answer 2

Abnormal fluctuations
Changes in experience
Random fluctuations
Changes in the way data was recorded
Potential errors in data
Changes in mix of homogenous groups of past data
Changes in mix of homogeneous groups to which assumptions apply

Question 3

Other factors to consider

Answer 3

Degree if accuracy of assumption will depend on purpose to which to will be put
Accuracy is important when determining one off payment
Model may contain implicit assumptions

Question 4

Standard tables

Answer 4

National statistics is often available but won’t necessarily reflect insured population
Industry level data may be provided, need to be checked

Question 5

Assumptions for pricing

Answer 5

Margins
Risk discount rate
Profit criterion

Question 6

Assumptions for pricing

Contract design riskier

Answer 6

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