Chapter 21-22: Setting Assumptions Flashcards
1
Q
Basic methodology for settings assumptions
A
- Investigate historical experience
- Consider future conditions
- Determine best estimate assumptions
- Reliance on experience data depends on credibility and relevance of data
- Possibly adjust best estimates for prudence
2
Q
Where a cashflow used for pricing, risk from adverse future experience is allowed for by:
A
- risk element of risk discount rate
- a stochastic approach
- assessing what margins to apply to the expected values
3
Q
Features that make product design riskier:
A
- Lack of historical data
- High guarantees
- Policyholder options
- Overhead costs
- Complexity of design
- Untested market
4
Q
Embedded Value =
A
The sum of:
- Shareholder-owned share of net assets
- Present value of future shareholder profits arising on existing business
5
Q
Appraisal Value =
A
Embedded value + Goodwill
