Data, Assumptions and Modelling

Question 1

Uses of data

Answer 1

• -Statutory returns
• -Investment monitoring
• -Risk management
• -Management info & financial control
• -Accounting
• -Pricing
• -Experience stats and analysis
• -Marketing
• -Admin
• -Provisioning

Question 2

Sources of data

Answer 2

• -Tables
• -Reinsurers
• -Abroad
• -Industry
• -National statistics
• -Existing contract experience
• -Regulatory reports and competitor accounts
• -Similar contract experience

Question 3

Disadvantages of industry-wide data

Answer 3

--Heterogeneity
(places, styles, processes, products)
--less Detail
--less Flexible
--less Up-to-date
--dependent on Members' data systems
--not all Contribute

Question 4

Characteristics of good quality data

Answer 4

–Complete
–Accessible
–Consistent
(format, comparable across systems - unambiguous inputs)
–Credible
–Relevant
(up-to-date, detail)
–Accurate
–Quantity of data

Question 5

Data checks

Answer 5

--Cross-check 
(against other sources)
--Consistency
(ave, min, max)
--Recon
--Spot checks

Question 6

Factors affecting assumption setting

Answer 6

• -Financial significance of assumptions
• -Legislative and regulatory requirements
• -Use of the model to which the assumptions contribute
• -Clients’ needs
• -Consistency between assumptions

Question 7

Requirements of a good model (pt 2)

Answer 7

• -Valid
• -Adequately documented
• -Rigorous
• -Inputs to parameters need to be appropriate
• -Arbitrage free (economic interpretation)
• -Behave reasonably
• -Length not too long to run or too expensive
• -Easy to understand
• -Communicable and transparent workings/outputs
• -Representativeness (reflects risk profile of contracts being modelled)
• -Independent verification of outputs
• -Sensible joint behaviour of variables
• -Parameters allow for all significant features
• -Simple (parsimonious)

–Clear results (transparent)
–Adaptable (versatile in implementation)
–Refineable
–Developable
(evolution process for last 3)

...old:
--appropriate Parameters
--Communicable 
--Valid
--Verifiable
--Versatile
(applicable to different contexts)
--major Features captured