Chapter 24-26: Risks

Question 1

What the sources of risk?

Answer 1

CPPIE MV

Claim (frequency and amount)
Persistency
Policy and other data
Investment income
Expenses
Mix
Volume

Question 2

What are other sources of risk? (PD specific)

Answer 2

Guarantees and options
Competition
Actions of management
Counterparties
Legal, regulatory and tax developments
Reputation
Fraud & internal audit
Physical risks
Aggregation and concentration risk
Catastrophe risks
Non-disclosureWh

Question 3

What are 3 risks associated with demographic assumptions

Answer 3

1. Model risk - model chosen is wrong
2. Parameter risk - wrong dbn of parameter
3. Random fluctuations risk

Question 4

What is the risk associated with the claim frequency and claim amount

Answer 4

Medical advances
Change in treatment conditions
Increasing availability of treatments
Living longer
Hospital capacity change
Encouraging screening
Disease breakout
Medical inflation
Negotiation in pricing agreement
Violence /crime in the areas

Question 5

Why would expenses differ for different products?

Answer 5

Underwriting procedure
Mix of business
Nature of contract
Volume of business
Commission paid

Question 6

Why would the persistency differ from what is expected?

Answer 6

Selective withdrawals - worse pool leftover
Expense assumption
Business mix

Question 7

What is the risk of too much new business

Answer 7

1. High capital required (capital may not be enough)
2. Too much admin

Question 8

What is the risk of too little new business?

Answer 8

1. Fixed costs (overheads won’t be covered)
2. Profitability drops