Chapter 39: Monitoring

Question 1

Reasons for monitoring experience:

PAUMPIE OP

Answer 1

Part of ACC (Assess the solution developed, assess the effectiveness of the problem identification)
Actual experience of a provider monitored to check:
- If the method and assumptions adopted for financing
the benefits continue to be appropriate
- If not - changes made to achieve the desired level of
profit.
Update assumptions as to future experience (for pricing, reserving etc DIE FULC CITIE C )
Monitor any adverse trends in experience to take corrective actions
Provide management information`
to monitor
Investment performance and strategy investigated
Effectiveness of management control systems in place

OP = Investment returns + Premiums - Expenses - Commission - change in reserves

Question 2

Reasons for investigating the appropriateness of the investment strategy:
FLIDA CNCR/SARA

Answer 2

Funding or Free Asset level might have changed
Liability structure could have changed
Investment manager’s relative performance should be investigated
Discount rate used to value L should be assessed
Allocation of investment income between classes of business

Change in commitment/ strategy
New asset classes might be available
Regulatory requirement to review investment strategy
Change in risk appetite

Changes in: 
Strategy 
Assets available in the market 
Regulation 
Appetite for risk

Question 3

Allowances made when analysing an exprience CART HP:

Answer 3

Cycles
Abnormal events
Random fluctuations
Trends
Heterogeneity between current and future groups 
Prudence (to account for uncertainty)

Question 4

Stages of experience investigations: DIR

Answer 4

Division of data into suitable homogeneous groups, consider VFaC
Identification of any past: CART HP
Use the results to revise models and assumptions used, consider PAD / SiCR MaCT

Question 5

When changing making changes after monitoring, consider: SiCR MaTCh C/
SICCCRMat

Answer 5

Significance of assumption/ model changes
Correlation between various factors
Regulatory requirements / Random variation

Margins used - what risks should be allowed for
Time horizons
Changes of contract design over time
Credibility of the results used (volumes and duration of data0

Question 6

Reasons why a (general) insurance company would want to monitor their experience

PPRInCS F MaMa

Answer 6

• To set assumptions for Provisioning and to monitor the run-off of claims against expectations
• to assess the Profitability of its business and the key components of profitability
• to assess Reinsurance requirements and to monitor the adequacy of reinsurance
• to determine an appropriate Investment strategy or to monitor effectiveness of existing one
• to determine Capital requirements
• to monitor the Solvency level of the company
• to assist with Financial planning and strategy
• to provide Management information
• to help with Marketing new contracts

Question 7

Why solvency position might have changed?

Think A/L as well as BEE

Answer 7

Basis and methods used change

• change in valuation method
• change in the valuation assumptions

Experience between valuation periods

• claims experience VRUIF CaRBEN DRINKS
• Investment experience FLIDA
• mortality/morbidity experience
• expense experience
• new business volumes

Events that happened between valuation periods

• Fraud
• Distribution of surplus via special dividend
• Errors in data, model or valuation.
• Competition