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F101 > Chapter 31 - Monitoring and feedback into the control cycle > Flashcards

Chapter 31 - Monitoring and feedback into the control cycle Flashcards

1
Q

Reasons for monitoring experience

A

I PUMA

  • make more INFORMED decisions about pricing and about the adequacy of reserves
  • PROVIDE management information to aid business decisions
  • UPDATE assumptions for future experience
  • MONITOR any trends in experience
  • monitor ACTUAL compared to expected experience and take corrective actions as needed
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2
Q

What is the data requirement for monitoring

A
  • there is a reasonable volume of stable, consistent data, from which future experiences and trends can be deduced
  • The data needs to be divided into sufficiently homogeneous risk groups, according to the relevant risk factors. However, this ideal has to be balanced against the danger of creating cells that have too little data in them to be credible
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3
Q

What does it mean for data to be consistent

A

Consistent means that when comparing the experience of one group of policyholders with another, say, the data used as a basis for the calculations for each group should be:

PEGS

Preferably extracted from the same source
Equal in terms of reliability
Grouped according to the same criteria
Similar
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4
Q

What is the purpose to analyse the experience of new business sales against targets

A

ABC N

  • ADEQUACY of staffing levels
  • BUSINESS mix against that assumed in the pricing basis
  • COMMISSIONS paid against those assumed
  • NEW business strain
    --
  • To check the strains caused by the volume of new business sold against the capital set aside for this purpose
  • To check the mix of business in each of the significant homogenous cohorts against the mix assumed in the pricing basis
  • To check the staffing levels in terms of numbers and competence against those required by the business written
  • To check the commission paid against those assumed ( where averages were estimated in the pricing bases)
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5
Q

In what categories would you sub-divide the data in order to do an analysis of experience

A

USTAD BOSS GG

  • Underwriting status
  • Smoker status
  • Type of contract
  • Age
  • Duration from entry
  • Benefit conditions, eg. length of deferred period
  • Occupation, or industry for group business
  • Source of business
  • size of group
  • Gender
  • geographical location
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6
Q

For PMI products, what further factors would you consider when you sub-divide the data in order to do an analysis of experience

A

CANT

  • COVER option
  • AMOUNT of excess or co-payment level
  • NCD level
  • TYPE of benefit (eg hospitalisation, specialist consult)
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7
Q

What adjustments are usually made to data before it is used in analysis

A

CHUTES

  • Changes in CLAIMS development patterns
  • Allowance for the problems of HETEROGENEITY
  • Allowance for UNSETTLED, unreported and re-opened claims
  • Changes in TYPE of claim
  • EXCEPTIONAL or large claims
  • SEASONALITY pattern of claims
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8
Q

What would you compare when doing competitor analysis

A
  • Risk selection
  • Policy coverage
  • Pricing
  • Product design
  • Volumes of business written
  • Methods of distribution
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9
Q

How would would subdivide the data when doing a persistency experience analysis

A

F PODCAST

  • Frequency and size of the premium
  • Premium payment method ( Premiums paid in cash are more noticeable)
  • Original terms of contract
  • Duration in force ( Persistency rates are generally lower during start of a contract)
  • Claims experience / NCD for PMI contracts
  • Age and gender
  • Sales method and target market
  • Type of contract ( eg. long term has different persistency to short term )
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10
Q

What are the factors that affect the future persistency rates

A
  • Current economic situation
  • Competitive situation of the product
  • Perceived value of the product to the customer
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11
Q

How is expense experience carried out

A

The expenses incurred in writing the class of business, in its administration and in the payment of claims will be compared against the assumptions in the pricing basis and revisions to expense allocations can then be made where appropriate

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12
Q

How do you subdivide expenses when doing an analysis

A

Expenses relating to:
- New business
- Existing business
- Terminations
- paying claims
- Investment management

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13
Q

How can expenses be split up for an expense analysis

A
  • Initial
  • renewal
  • Termination
  • Claim expenses
  • Investment expenses
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14
Q

What are the main expense items?

A
  • Salaries and salary-related expenses
  • Property costs
  • Computer costs
  • Investment Costs
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15
Q

Why perform an analysis of embedded values

A
  • Validate the calculations, and assumptions used
  • Reconcile the values for successive years
  • Provide management information
  • Provide data for use in executive remuneration schemes
  • Provide detailed information for publication in the company’s accounts or those of any parent company, in particular the value of new business taken on by the company
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16
Q

What information will an analysis of embedded value give management

A

M WIVES

  • The amount of any MORBIDITY profit or loss
  • The amount of any WITHDRAWAL profit or loss
  • The IMPACT of free assets on embedded value growth
  • The VALUE of new business written, normally by product
  • The amount of any EXPENSE profit or loss
  • The impact of SUPERVISORY solvency capital requirements on the rate of return achieved
17
Q

How will the results of the experience analysis feed back into the ACC

A

MAC SPUR C PSW

MAC
- Changing/improving the MARKETING message
- Providing for the ADEQUECY of staffing
- Altering the CAPITAL allocation methodology
--
- Revising (SPUR C)
– SALES procedures in terms of training and selection of distributors, wording and format of literature and the mechanics of any commission payments and clawback
– POLICY design
– the UNDERWRITING process
– RESERVING basis
– CLAIMS handling processes
--
- Improving (PSW)
– Pricing basis
– the Systems and data recording processes
– Wording of policy contracts

18
Q

What are the areas of business an actuary would carry out an analysis of experience

A

PRINCE M

  • Persistency rates
  • Renewal rates
  • Investment returns
  • New business rates
  • Claim amounts
  • Expenses
  • Mortality and sickness rates (and other contingency rates)
19
Q

Reasons that the escalation in claims amounts may be different from that expected

A

BIN PM

  • Changes in the BEHAVIOUR of medical professionals and/ or changes in the demand for treatment by policyholders may result in policyholders using more expensive healthcare providers
  • IMPLEMENTATION of claims management techniques, such as the fixed payment methods, may reduce claim amounts
  • There may be NEW diseases or changes in the prevalence of certain diseases and conditions
  • The PROFILE of covered lives may be different to that assumed or have changed due to growth or selective lapses
  • MEDICAL innovations may result in the use of more expense equipment for a particular procedure
20
Q

List the reasons why providers analyse surplus

A

VV MANDATED RN

  • VALIDATE calculations and assumptions
  • demonstrate that the VARIANCE in the financial effect of individual sources is a complete description of variance in the total financial effect
  • provide MANAGEMENT information
  • determine ASSUMPTIONS that are most financially significant
  • show the financial effects of writing NEW business
  • show the financial effect of DIVERGENCE between valuation assumptions and actual experience
  • provide information for publication in ACCOUNTS
  • give info on the TRENDS in experience that feed back into the actuarial control cycle
  • provide data for use in EXECUTIVE remuneration schemes
  • provide checks on valuation DATA and processes
  • RECONCILE values for successive years
  • identify NON-RECURRING components of surplus: enables appropriate decision making about distribution of surplus
21
Q

What to do if the surplus is significantly less than expected

A

The current assumptions is likely to be wrong and have to be revised.

F101 (32 decks)

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