Managing the Business

Question 1

Bases used as expected amounts for actual to expected analysis (4)

Answer 1

1. Original pricing assumptions - management likely reviewed these assumptions when the product was being developed, so management expectations may be based on these assumptions.
2. Profit targets - this is bottom lime metric that most senior management is interested in.
3. Current pricing - maybe be most useful measure for inflation sensitive products b/c inflation targets are not reliable over the long term
4. Tabular - for DI coverage, published tables is used for comparison. For DI and LTC, companies with large amounts of data may develop their own internal tables for comparison.

Question 2

Measuring credibility or reliability of deviations from expected values (2)

Answer 2

1. Based on A/E ratio - statistical test performed to determine if A/E ratio is too high or too low based on statistical confidence intervals
2. Determine significance of deviation if the number of claims result in a statistical sifnificance level of being exceeded. Testing based on a normal distribution for sample sizes >20 and teh T distribution for lower sample size

Question 3

Fundamental goals of capital management (2)

Answer 3

1. Maintain appropriate capital levels - the target capital level relative to a benchmark is used to manage overall capital level (RBC ratio)
2. Have external parties approve of capital levels (i.e. regulators, rating agencies)